Labor Supply and Automation Innovation

69 Pages Posted: 9 Jul 2020

See all articles by Alexander Danzer

Alexander Danzer

Catholic University of Eichstaett-Ingolstadt

Carsten Feuerbaum

KU Eichstaett-Ingolstadt

Fabian Gaessler

Max Planck Institute for Innovation and Competition

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Date Written: 2020


While economic theory suggests substitutability between labor and capital, little evidence exists regarding the causal effect of labor supply on inventing labor-saving technologies. We analyze the impact of exogenous changes in regional labor supply on automation innovation by exploiting an immigrant placement policy in Germany during the 1990s and 2000s. Difference-in-differences estimates indicate that one additional worker per 1,000 manual and unskilled workers reduces automation innovation by 0.05 patents. The effect is most pronounced two years after immigration and confined to industries containing many low-skilled workers. Labor market tightness and external demand are plausible mechanisms for the labor-innovation nexus.

JEL Classification: O310, O330, J610

Suggested Citation

Danzer, Alexander and Feuerbaum, Carsten and Gaessler, Fabian, Labor Supply and Automation Innovation (2020). CESifo Working Paper No. 8410, Available at SSRN: or

Alexander Danzer (Contact Author)

Catholic University of Eichstaett-Ingolstadt ( email )

Auf der Schanz 49
Ingolstadt, D-85049

Carsten Feuerbaum

KU Eichstaett-Ingolstadt ( email )

Ingolstadt, 85049

Fabian Gaessler

Max Planck Institute for Innovation and Competition ( email )

Marstallplatz 1
Munich, 80539

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