Automating Labor: Evidence From Firm-Level Patent Data

Do higher wages lead to more automation innovation? To answer this question, we first introduce a new measure of automation by using the frequency of certain keywords in patent text to identify automation innovations in machinery. We validate our measure by showing that it is correlated with a reduction in routine tasks in a cross-sectoral analysis in the US. Then we build a firm-level panel dataset on automation patents. We combine macroeconomic data from 41 countries and information on geographical patent history to build firm-specific measures of low-skill and high-skill wages. We find that an increase in low-skill wages leads to more automation innovation with an elasticity between 2 and 4. An increase in high-skill wages tends to reduce automation innovation. Placebo regressions show that the effect is specific to automation innovations. Finally, we use the Hartz labor market reforms in Germany for an event study and find that they are associated with a relative reduction in automation innovations.