On the role of automation in an epidemic

Abstract

This paper examines aggregate and distributional implications of automation in an epidemic. Using industry-level and firm-level data from the Chinese manufacturing sector, we document that the COVID-19 pandemic has led to a significant surge in the installation of industrial robots, and during the health crisis firms with more aggressive robot adoption experienced less severe revenue losses and a more pronounced increase in the wage gap between high-skilled and low-skilled workers. We then develop a tractable SIS-based macroeconomic model to explain these observations. The model economy has two steady states, and an outbreak can trigger a regime-switching transition from a disease-free steady state to an epidemic steady state. Accelerated robot adoption in the transition, stemming from labor shortfall and wage inflation, alleviates the loss in output but affects low-skilled labor disproportionately. These results are robust in an extended setting, where workers have an option to work remotely.