Technological Transitions and Labor Market Institutions: An Intergenerational Conflict (Job Market Paper)

Abstract

Technological progress in the form of automation spurs productivity, but disrupts labor markets through worker displacement and earnings reductions. I study the role of labor market institutions, and in particular unionization, in shaping the adoption of labor-replacing technology. Exploiting variation in unionization and employment decline among exposed workers across US commuting zones, I first document that unionization results in substantially earlier adoption, increasing the share of employment decline over the first decade of the transition by up to 20 percentage point. Second, unionization shifts the incidence of adjustment from incumbent, older to incoming, younger workers, resulting in an additional 4 percentage point decline in the share of young workers, and 24 percentage point decline in the ratio of young to old wages over the first decade. I then build a quantitative model that rationalizes the empirical findings through the interaction of unions and the adoption of labor-replacing technology. In the model, unions protect wages and employment of incumbent workers, resulting in less reallocation of older workers, and reduced wages and employment of incoming workers during the transition. Interestingly, firms endogenously respond through reduced hiring in anticipation of a technological transition to avoid future adjustment costs which allows the model to rationalize the documented earlier onset of employment decline, and provides a new perspective on the dynamic impact of employment protection. Using the model as a laboratory, I evaluate the effects of unionization on the pace of transitions, and quantify the resulting intergenerational conflict in terms of the consumption transfer from incoming to incumbent generations.