Robots and the rise of European superstar firms

Abstract

We study how a recent digital automation technology—industrial robots—is associated with the distribution of sales, productivity, markups, and profits within industries. Our empirical analysis combines data on the industry-level stock of industrial robots with firms' balance sheet data for six European countries from 2004 to 2013. We find that industries with high robot exposure are characterized by dis-proportional increases in productivity in those firms that are already most productive to begin with. Those firms are able to increase their markups and overall profits, while less profitable firms within the same industry, country and year tend to see declining markups and profits. We also find that variation in robot exposure across industries is correlated with declining labor income shares, mainly through adjustments within firms that are initially large, productive and have low labor cost-to -sales ratios. In sum, our paper suggests that European manufacturing industries with higher robot adoption rates experience a stronger emergence of superstar firms and more pronounced shifts of the functional income distribution away from wages and towards profits.