Labor Supply and Automation Innovation

Despite a longstanding interest in the potential substitution of labor and capital, limited empirical evidence exists regarding the causal relationship between labor supply and the development of labor-saving technologies. This study examines the impact of exogenous changes in regional labor supply on automation innovation by leveraging a German immigrant allocation policy during the 1990s and 2000s. The findings reveal that an increase in the low-skilled workforce reduces automation innovation, as measured by patents. This reduction is most pronounced for large firms within the manufacturing sector and primarily concerns process-related automation innovations. This suggests that the effect is channeled through changes in internal demand for automation innovation. Consistent with a labor scarcity mechanism, the effect is confined to tight labor markets.

Keywords: Automation, labor supply, innovation, patents, migration, Germany

JEL Classification: O31, O33, J61

Suggested Citation: Suggested Citation

Danzer, Alexander and Feuerbaum, Carsten and Gaessler, Fabian, Labor Supply and Automation Innovation (May 10, 2024). Max Planck Institute for Innovation & Competition Research Paper No. 20-09, Journal of Public Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3642594 or http://dx.doi.org/10.2139/ssrn.3642594