Induced Automation Innovation: Evidence from Firm-Level Patent Data

Abstract

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.