Induced Automation: Evidence from Firm-level Patent Data

Do higher wages induce more automation innovation? We identify automation patents in machinery. We show that a higher automation intensity predicts a decline in routine tasks across US sectors.  Then, we estimate how innovating firms respond to changes in their downstream firms' low- and high-skill wages. We compute these wages by combining macroeconomic data on 41 countries with innovating firms' global market exposure. Higher low-skill wages increase automation innovation (but not other machinery innovation) with an elasticity of 2-5. Finally, we show that the German Hartz labor market reforms reduced automation innovations by foreign firms more exposed to Germany.

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