(Revised May 23, 2025)

How do robots and tools affect employment and labor market inequality? Using natural language processing and an instrumental variable approach, we discover that robots lead to a sizable decrease in the employment and wages of low-skilled workers in operational occupations. However, tools, i.e., machines that complement labor, lead to an equally large reinstatement of these workers, increasing their employment and wages. Using a quantitative model, we find that the lower prices of robots and tools over the last 20 years have reduced labor market inequality and increased welfare without significantly affecting employment.