Is Automation Destroying the Labor Market in Developing Countries?: Evidence from China

Abstract

People are losing their jobs due to automation. A handful of studies have investigated this technological unemployment in developed countries. A report from the World Bank (2016) pointed out 1.8 billion jobs in developing countries are at risk of being replaced by automation. Under the background of a fourth industrial revolution, there is growing fear that automation is destroying the traditional labor market in the next 10 to 20 years. Yet, we are still in the very first stage of exploring the impact of robotization in developing countries. This paper analyzes the effects of exposure to industrial robots in the Chinese labor market. Using panel data from 27 provinces and 4 municipalities over the years 2012 to 2018, this paper found a negative impact of robot exposure on employment, which is one additional industrial robot per thousand workers is associated with a 0.52 percentage point increase in the unemployment rate. In addition, the paper further checked what factors contributed to the variation of the coverage of the industrial robots. The empirical findings indicated that the growth of automation is not decided by any government strategy, in fact, it is the more commodities demanded from foreign countries and increased foreign investment that led to the increased level of automation in China.