The Labor Market — End of Chapter Problem The number of bank tellers declined from an average of 20 per branch in 1988 to 13 in 2004, as ATMs replaced human tellers. This meant that the cost of running each branch fell. Banks responded by increasing the number of urban bank branches by 43% in the same time period, which increased the total number of bank employees. So ATMs shifted employees’ work from routine tasks like deposits and withdrawals towards skills machines cannot provide, such as sales and customer service. When the use of ATMs became more prevalent, reducing the banks’ overall costs, the was dominant. On net, labor and capital would be considered in this industry.
The correct answer and explanation is:
The correct answer is: scale effect and complements.
Explanation:
The introduction of ATMs into the banking industry led to a scale effect, which occurs when technological advancements reduce costs, allowing firms to expand their operations. In this case, the use of ATMs significantly lowered the cost of running a bank branch, leading banks to open more branches, particularly in urban areas. As a result, the demand for bank employees actually increased despite a reduction in tellers per branch.
Rather than replacing human workers entirely, ATMs shifted the nature of their work. Traditional teller tasks such as handling deposits and withdrawals were automated, but this freed up employees to focus on roles requiring human interaction, such as sales and customer service. These roles involve complex decision-making, relationship management, and personalized service—skills that machines cannot easily replicate.
Because labor was not entirely replaced but instead complemented by capital (ATMs), this suggests that labor and capital in the banking industry are complements rather than substitutes. When capital (ATMs) became more prevalent, the total demand for labor in banking increased, as workers were reallocated to more specialized, value-adding roles.
This case demonstrates how automation does not always lead to job losses but can transform the labor market by changing the tasks employees perform. Instead of eliminating workers, technology can enhance productivity, allowing businesses to expand and create new job opportunities.