Fact of the Week: Every 1 Percent Increase in Wages for Low-Skilled Jobs Leads to a 2 to 5 Percent Increase in Automation Innovation

Source: Antoine Dechezleprêtre, et al., “Induced Automation: Evidence from Firm-level Patent Data,” University of Zurich, Department of Economics, Working Paper No. 384, April 2021.

Commentary: There have been a number of studies showing that an increase in wages for low-skill workers boosts automation, which stands to reason. In a new study of 41 nations between 1997 and 2011, researchers from the University of Zurich find that when wages increase for low-skilled jobs, so too does automation innovation (as measured by patents). As such, if the United States wants to be globally competitive in automation-related technologies, especially vis-à-vis China, then policies to ensure higher wages for low-skilled workers are key, including expansionary fiscal and monetary policy for full employment, stronger limits on low-skill immigration, and a higher minimum wage.