Robots, Offshoring, and Welfare

We study the effect of industrial robots in the presence of offshoring. A simple model shows that if robots displace foreign-sourced tasks, automation is necessarily welfare-improving for the domestic economy. If instead robots displace domestically-produced tasks, automation can lower domestic welfare through a deterioration of the terms of trade, even when beneficial in autarky. These results underscore the importance of identifying which workers are in more direct competition with automation. Using data on imports of industrial robots and exploiting variation across industries, occupations and local labor markets, we find that automation displaces US workers, but that its effect is weaker in commuting zones that are more exposed to offshoring. Industrial robots also lower the incidence of offshoring and their negative employment effects are concentrated in non-offshorable occupations. These results are consistent with the view that automation contributes to the reshoring of economic activity, which in turn tends to mitigate any adverse labor market effects for US workers.