Automation-skill complementarity: the returns to soft skills in different stages of technology adoption

Abstract

This paper explores the complementarity of automation with social and problem-solving skills, focusing on the wage effects. The results based on detailed firm- and individual-level data from Estonia show that in those manufacturing firms that recently adopted automation tools, there is an additional wage premium to reward the employees’ social skills. We show as the first novel finding that this relationship is even stronger for the low-skilled workers, emphasizing the importance of social skills at low-wage jobs and how innovation at firms can have significant positive effects on some sub-groups of the low-skilled. We show as the second novel finding that the role of skills depends on how persistent the automation investments are at the firm. The valuing of social skills is especially evident in currently automating firms, although not necessarily evident in the sub-group of firms that automate persistently. This underlines the importance of overcoming coordination costs, especially in the earlier stages of automation at the firm.