This study examines the economic implications of automation on labor markets in developing countries, where structural unemployment and a rapidly growing workforce are critical challenges. Automation, driven by advancements in artificial intelligence and robotics, presents opportunities to enhance productivity and economic growth. However, it also poses significant risks to labor-intensive sectors, which dominate many developing economies. This paper explores the dual impacts of automation: the displacement of low-skill jobs and the creation of demand for new, high-skill roles. It highlights how the transition could exacerbate inequality, deepen skill mismatches, and widen the digital divide if not carefully managed. Additionally, the study assesses the potential for automation to improve efficiency in critical industries like agriculture and manufacturing, offering pathways for economic diversification. Policymakers are urged to prioritize education reforms, upskilling initiatives, and investments in digital infrastructure to mitigate adverse effects while harnessing automation’s benefits. The findings underscore the need for inclusive strategies that balance technological adoption with social equity, ensuring sustainable economic growth in the era of automation.