Automation and Income Inequality in Europe (Deliverable 3.5)

We study the effects of robot penetration on income inequality in 14 European countries between 2006-2018, a period of rapid adoption of robots. We first use the approach proposed by Acemoglu and Restrepo (2022) to show that, similarly to the US, automation reduced hourly wages and employment in Western Europe, but had no significant effect in Eastern Europe, where labor costs have been noticeably lower. We then use the estimated wage and employment shocks as input to the EUROMOD microsimulation model to assess how robot-driven shocks affected household income inequality. Automation widened income inequality in European countries, but its contribution was very small, about one percent of the recorded change in the Gini index in this period. European countries’ tax and benefit systems absorbed wage and employment shocks caused by automation. Benefits played a larger role, especially in Western Europe. Welfare states appear more effective in mitigating the effects of automation in Europe than in the US