Automation Increases Demand for Contract Work in Italian Firms
As automation technologies spread, understanding their impact on employment is crucial for policymakers and businesses. This study, "Automation and flexible labor contracts: Firm-level evidence from Italy," by Silvio Traverso, Massimiliano Vatiero, and Enrico Zaninotto, explores how automation investments relate to firms' use of flexible labor contracts.
The big picture: New research finds that firms investing in automation also tend to increase their use of flexible labor contracts, suggesting these technologies complement rather than replace workers. This relationship may have been overlooked in previous debates about labor market reforms.
Key findings:
Firms that invested in automation saw a 9% increase in flexible workers compared to non-investing firms.
Automation investment was also associated with the following:
5% increase in total employment
7-8% increase in employee turnover
10-12% increase in hiring
No significant effect on job terminations
About 2/3 of the increase in flexible workers was directly related to automation, with 1/3 indirectly due to overall employment growth.
The study used data from about 10,450 Italian firms between 2015-2018.
Between the lines: The researchers argue that automation and flexible labor are complementary because they both enhance firms' "operational flexibility"—the ability to quickly adjust production to market changes.
Automated systems are reprogrammable, allowing rapid task switching.
Flexible contracts enable swift workforce adjustments.
These provide maximum adaptability for firms facing volatile demand and intense competition.
The catch: While the study shows automation increases hiring, it also boosts the use of flexible contracts. Previous research indicates that such contracts reduce job security and wages over the long term. This creates potential tension: more jobs but lower paying and less stable ones.
What they're saying: If the complementarity hypothesis holds, changes in employment legislation that increase the costs for firms to adjust their workforce promptly will also diminish the returns on firms' investments in automation
About the paper:
The study considered "hard" automation technologies like robotics, IoT, big data, and augmented reality.
It used a matched difference-in-differences approach to compare firms that invested in automation to similar non-investing firms.
The authors suggest that future labor reforms should protect workers without compromising firms' workforce flexibility.
Introducing minimum wages or direct support for low-income workers
Promoting training programs for task-specific skills
Developing national skill certification systems
Encouraging internal workforce flexibility
Bottomline: Policymakers aiming to improve worker protections should be mindful of how this may impact firms' ability to benefit from automation investments. The complementarity between flexible labor and automation may be stronger than previously recognized.