Automation Displaces Workers
The question
Assume the economy of Thornwick is operating at its natural rate of unemployment with stable, fully anticipated inflation. Over several years, widespread adoption of industrial automation permanently eliminates the jobs of a large share of manufacturing workers whose skills do not match the openings now available elsewhere in the economy. Assuming inflation expectations are unchanged, show the complete long-run effect of this change in the Phillips curve model. Show the effect on the Phillips Curve graph.
Drag a curve, or use the arrow buttons. Want the free-play version with every control? Open this graph in the sandbox.
Automation Displaces Workers: the worked answer
On the Phillips Curve graph, LRPC shifts right and SRPC shifts up (right).
Why LRPC shifts right and SRPC shifts up (right)
When automation permanently eliminates jobs for workers whose skills no longer match available openings, it raises structural unemployment, which increases the natural rate of unemployment. The long-run Phillips curve is vertical at the natural rate, so it shifts right to the new, higher natural rate. With inflation expectations unchanged, the short-run Phillips curve relocates rightward together with it, so its intersection with the long-run Phillips curve sits at the higher natural rate at the same expected inflation. Because expectations do not change, the SRPC re-centers on the higher natural rate rather than shifting up, and the whole model re-anchors at that rate.
What happens to the equilibrium
The economy now sustains a permanently higher unemployment rate at an unchanged rate of inflation.
The mistake students make on this one
Students frequently move only the SRPC, reading 'workers lose their jobs' as a short-run event. Automation that permanently strands workers whose skills no longer fit the openings that remain raises structural unemployment, and structural unemployment is a component of the natural rate, so the vertical curve is what has to move.
On exam day
Permanent skills mismatch is a natural-rate story, never a short-run one. If a stem says jobs are gone for good and the displaced workers cannot fill what is still open, relocate the model to the higher natural rate instead of raising the inflation associated with each unemployment rate.
How this is graded
The checker reads every curve's position before and after your answer. You are marked correct only when LRPC shifts right and SRPC shifts up (right) and every other curve on the Phillips Curve graph stays where it started — the same standard an AP reader applies to a drawn graph: the right shift, and nothing extra. There is no AI involved; the rubric is the geometry.
More Phillips Curve scenarios
Last updated