This paper studies the effects of automation in economies with labor market distortions that generate worker rents—wages above opportunity cost—in some jobs. We show that automation targets high-rent tasks, dissipating rents and amplifying wage losses from automation. It also reduces within-group wage dispersion for exposed groups. Automation-driven rent dissipation is inefficient and reduces (and could even negate) the productivity gains from automation. Using data for the US from 1980 to 2016, we find evidence of sizable rent dissipation and reduced within-group wage dispersion due to automation. Using these estimates and accounting for equilibrium effects, we estimate that automation accounts for 52% of the increase in between-group inequality in the US since 1980, with rent dissipation being responsible for a fifth of this contribution. We also estimate that inefficient rent dissipation offset 60–90% of the productivity gains from automation since 1980.
