Abstract:
Unlike much of the existing literature, which focuses primarily on the potential for automation technology to replace labor, we believe that progress in automation technology and the labor market are equally important. By taking advantage of the 2004 enlargement of the European Union and the subsequent influx of cheap labor from new member states into the UK, we find that occupations or industries that were more impacted by this influx are less likely to adopt automation equipment. Further analysis indicates that discrimination keeps the wages of immigrant labor below equilibrium, incentivizing firms to substitute automation with less expensive immigrant labor. To eliminate potential endogenous problems, we also use the same shock that Ireland experienced as an instrumental variable. Even when using robot installations as an alternative metric for the application of automation technology, the results remain robust. Our mechanism test reveals a larger substitution effect in occupations where the wage gap between immigrant and local labor is greater. Our findings highlight the importance of labor price in determining the adoption of automation technology, providing a valuable supplement to existing research on the relationship between automation technology and labor. This study also has important policy implications, indicating that in the promotion of intelligent manufacturing with automation as the core, policies relating to labor will, in turn, affect the adoption of automation technology.