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-indifferences 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.

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Does the regional concentration of immigrants of the same ethnicity affect immigrant children’s acquisition of host country language skills and educational attainment? We exploit the concentration of five ethnic groups in 1985 emanating from the exogenous placement of guest workers across German regions during the 1960s and 1970s. Results from a model with region and ethnicity fixed effects indicate that exposure to a higher own ethnic concentration impairs immigrant children’s host country language proficiency and increases school dropout. A key mediating factor for the detrimental language effect is parents’ lower speaking proficiency in the host country language, whereas inter-ethnic contacts with natives and economic conditions do not play a role in language proficiency or educational attainment.

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