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Automation and Jobs: When Technology Boosts Employment

Do industries shed jobs when they adopt new labor-saving technologies? Sometimes productivity-enhancing technology increases industry employment instead. In manufacturing, jobs grew along with productivity for a century or more; only later did productivity gains bring declining employment. What changed? Markets became saturated. While the literature on structural change provides reasons for the decline in the manufacturing share of employment, few papers can explain both the rise and subsequent fall. Using two centuries of data, a simple model of demand accurately explains the rise and fall of employment in the US textile, steel, and automotive industries. The model helps explain why the Industrial Revolution was highly disruptive despite low productivity growth and why information technologies appear to have positive effects on employment today.