(BFM Bourse) – Monetary policy is transmitted differently depending on the degree of automation of an industrial sector, suggests a study by the Banque de France. Employment in highly robotic industries is almost half as sensitive to a drop in interest rates as in less mechanized industries such as electronics or the automobile.
The place of robotics, automation and artificial intelligence has been growing for decades in all economic activities, and industry is obviously not immune to the trend. As Stéphane Lhuissier, research economist at the Banque de France’s monetary policy research department, reminds us in the institution’s “Eco notepad”, the robotization rate – defined as the number of robots per million hours worked- in the euro zone increased from 0.25 in 1990 to more than 1.75 in 2019.
Intuitively, in a highly robotic industry, where capital replaces labor in a significant way, monetary policies that stimulate demand could lead to diminished effects on employment because they would fail to replace the jobs that technology has made obsolete. , postulates Stéphane Lhuissier.
To verify this intuition, the economist compared the effects of monetary policy on the employment of highly and weakly robotic industries by applying a statistical model (autoregressive vector framework) to a set of panel data on the different industries, data from the USA over a fairly long period (1990 to 2007), crossed with “monetary surprises” defined as monetary policy announcements by the Federal Open Market Committee (FOMC) of the Federal Reserve resulting in a change in contracts futures on the Fed Funds rate.
The influence of monetary policy on technological decision-making
As a result, it appears that a fall in the rate has a significantly greater impact on employment in industries such as furniture, printing or even textiles (with a low rate of robotization) than in industries very robotized like electronics, chemistry or automotive.
Following a dovish monetary decision that lowered the Federal Reserve’s federal funds rate by 0.25 percentage points, employment increased to its maximum of 0.7% in highly robotic industries and 1.3 % in low-robot industries, says the statistical study.
“Monetary policy can influence the technological decision-making of firms. It therefore appears that robotics contributes to explaining the heterogeneous effects of monetary policy according to the sectors of activity. This analysis can largely be supported and enlightened by the theoretical study recent study by Fornaro and Wolf (2021) according to which monetary policy would affect the technological decision-making of firms, and more particularly the distribution of production tasks between capital and labor”, estimates the researcher. “In their model, capital and labor are highly substitutable in production activities. Thus, the fall in the relative cost of capital (compared to wages) allows firms to replace labor with capital in production tasks, which increases the use of robotic technologies and therefore the automation of tasks”.
In this context, in highly automated industries (where labor and capital are substitutable), “a monetary stimulus by means of a fall in interest rates generates a fall in the relative cost of capital for firms and promotes a reallocation of production tasks to capital, thus stimulating labor productivity more than employment”. Conversely, in a weakly robotized industry, “the phenomenon of reallocation of production tasks is of less importance and, consequently, the demand for labor accelerates more”.
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