Automation, while increasing aggregate employment in the long run, can displace and cause significant harm to incumbent employees. We propose that managers’ prosocial preferences, specifically their desire not to harm their employees, deter investing in automation research and adoption. We first show in experiments including a sample of senior executives that prosocial preferences reduce automation investment. We then show that managerial prosociality decreases automation investment and patents in US public manufacturing firms, especially process-automation patents that lead to larger layoffs. Across both the experiment and the field study, the negative effect is weaker when unemployment insurance reduces the harm to displaced employees. Our study highlights managerial prosocial preferences as a novel source of heterogeneity that shapes the rate and direction of firm innovation and cautions that managers’ care for employees can lead to underinvestment in automation. We discuss the potential role of social insurance programs in stimulating automation research and adoption by prosocial CEOs otherwise constrained by their concern for employees.
