Automating Labor: Evidence from Firm-level Patent Data

Do higher wages lead to more automation innovations? To answer this question, we first introduce a new measure of automation based on patent data. We use the frequency of certain keywords in the text of patents 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 exogenous increase in low-skill wages leads to more automation innovations with an elasticity between 2 and 4. An increase in high-skill wages tends to reduce automation innovations. Placebo regressions show that the effect is specific to automation innovations. Finally, we use the Hartz reforms in Germany as an event study and find that they are associated with a relative reduction in automation innovations.

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