Industrial robots, employment growth, and labor cost: A simultaneous equation analysis

In recent years, the global rapid expansion of industrial robots has induced ever-increasing concerns for the cause and effect of such growth, particularly with regard to its relationship with labor. This paper analyzes the factors underlying the adoption of industrial robots, employment growth and structure, and labor costs, taking into account the two-way causalities between these variables. For the empirical analysis, we use the three-stage least squares (3SLS) method for the system of simultaneous equations and apply it to the panel data constructed for 42 countries. Explanatory variables for each equation include the dependent variables of other equations and exogenous variables, such as the labor market environment, physical and human capital, and country-specific social environment. The empirical results of the present study indicate that the increase in both unit labor costs and hourly compensation level induces an extensive application of industrial robots. Subsequently, the expansion of industrial robots leads to a reduction of unit labor costs; however, the hourly compensation level increases, implying that the productivity-enhancing effect exceeds the wage-increasing effect of industrial robots. The extensive use of industrial robots tends to suppress employment growth, confirming the labor-substituting effect of industrial robots; the observed trend disproportionately affects low-skilled labor.