Labor supply and automation innovation: Evidence from an allocation policy

Alexander M. Danzer, Carsten Feuerbaum, Fabian Gaessler

Research output: Contribution to journalArticlepeer-review


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.

Original languageEnglish
Article number105136
JournalJournal of Public Economics
StatePublished - Jul 2024
Externally publishedYes


  • Automation
  • Germany
  • Innovation
  • Labor supply
  • Patents


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