Advanced Manufacturing Technologies on Employment and Skill Demand

Hirvonen, Stenhammar, Tuhkuri (2022) use a quasi-experimental design to analyze the effects of advanced manufacturing technology on employment, skill demand and firm performance. Their analysis focuses on new production technologies (including robots and computer numerical control machines) and does not directly apply to non-physical technological advances (e.g. digitization).

Utilizing large-scale data on manufacturing firms in Finland from the years 1994-2018,  the researchers compare firms who either just barley qualified or just barely missed qualification for receiving a technology subsidy. Winners of the subsidy receive direct funding for technology investments. Comparison of the close winner and close loser firms enables the researchers to analyze employment and skill demand in a firm that invests in new technologies compared to a similar firm who does not. This comparison is conducted using an event-study approach.

When analyzing the effect of technology on employment, they find that the subsidy program, through spurring technological investment, leads to a 23% increase in employment. Further, the researchers find that the spiked investment in technology due to the subsidy did not lead to the replacement of workers and did not increase skill demand.

To understand their results, the researchers utilize a theoretical framework that compares the “process” and “product” of technological change. Process is defined as “a productivity increase within an output variety, whereas product refers to expanding to new varieties” (Hirvonen, Stenhammar, Tuhkuri, 2022, p. 2). Their theoretical framework highlights that firms use new technology to produce new types of output (e.g. products and services) rather than replacing workers. Further, the researchers document advanced manufacturing technologies led to an increase in employment and did not change skill composition of workers.

Works Cited

Hirvonen, J., Stenhammar, A., & Tuhkuri, J. (2022). New evidence on the effect of technology on employment and skill demand. Available at SSRN 4081625.