Common Ownership Drives Automation Over Hiring, Study Finds

Shared Investors Push Firms Toward Labor-Replacing Innovation

When competing companies share the same institutional investors and draw from the same pool of workers, they shift their innovation strategy toward automation and slow their hiring, according to new research from Joseph Emmens, Dennis C. Hutschenreiter, Stefano Manfredonia, Felix Noth, and Tommaso Santini.

The study, first reported by ProMarket, examines how common ownership—when asset managers like BlackRock, Vanguard, and State Street hold stakes in multiple competing firms—affects corporate decisions about technology and employment. While previous research has focused on how shared ownership reduces price competition, this paper explores a different dimension: how it changes the type of innovation firms pursue.

The Labor Market Mechanism

The researchers built their analysis on a straightforward economic logic. When one firm expands its workforce in a local labor market, it drives up wages for everyone hiring in that area, including its competitors. Normally, a firm ignores this external cost. But when its shareholders also own the competitor, those rising wages cut into the shared owners' overall returns.

The solution: innovate to need fewer workers in the first place. The model predicts this effect should only appear when commonly owned firms actually compete for the same employees—not when they operate in separate geographic regions.

Testing With Real-World Data

To test their hypothesis, the researchers combined institutional holdings data, firm financials, establishment locations, and patent classifications covering automation technologies. They mapped company facilities to commuting zones to identify which firms genuinely compete for labor.

Rather than rely on simple correlations, the team examined mergers between institutional investors from 1990 to 2010. When two asset managers combine, the firms in their portfolios suddenly share a common owner—a change not driven by individual firm strategies. By comparing mergers that increased common ownership among labor-market rivals versus those affecting firms in different regions, the researchers isolated the causal effect.

The Results

When common ownership rose among local labor-market competitors, a firm's probability of producing an automation patent increased by roughly 3.79 percentage points—about nine percent above the baseline rate. Employment growth simultaneously fell by approximately 3.8 percentage points annually.

Crucially, these effects disappeared entirely when commonly owned firms operated in separate labor markets. The patents concentrated on process innovations that retool production to use less labor, not on new automation products. Non-automation patenting showed no increase, indicating firms redirected rather than expanded their innovation efforts.

Why It Matters

This research adds a new dimension to concerns about excessive automation in the U.S. economy. When firms automate primarily to suppress wages at co-owned competitors rather than to capture genuine productivity gains, the technology adoption may deliver limited economic benefits while displacing workers. The findings suggest common ownership can distort innovation incentives in ways that harm employment growth, wages, and labor's share of income.

For regulators who have focused on common ownership's effects on consumer prices, the study points to labor market impacts that deserve equal scrutiny. As institutional ownership concentration continues to grow, understanding how it shapes both the pace and direction of technological change becomes increasingly important.

The research was detailed in a paper by Emmens, Hutschenreiter, Manfredonia, Noth, and Santini, with findings first reported by ProMarket.