Digital Technology Adoption and Jobs: A Model of Firm Heterogeneity

35 Pages Posted: 1 Feb 2018 Last revised: 11 Apr 2018

See all articles by Irene Brambilla

Irene Brambilla

Universidad Nacional de La Plata

Date Written: January 31, 2018

Abstract

This paper develops a theoretical framework that expands the task-based models of technical progress and labor markets to allow for firm heterogeneity and wages that vary across firms. The model is compatible with the empirical observation that more productive firms are larger, are more skill intensive, and pay higher wages across skill categories. The model predicts that the decision to invest in information and communications technology depends on firm size and labor market characteristics. As a result of investment in information and communications technology firms grow, become more intensive in complex tasks, become more skilled intensive, and employ more skilled workers as long as skilled labor is complementary to information and communications technology. Employment of unskilled workers increases as well, provided that firm output growth is sufficiently high to overcome the negative substitution effect. Workers who remain employed are better off because their wage increases with information and communications technology. To the extent that skilled workers have more bargaining power than unskilled workers, or that their wage scheme is more tied to firm performance, wage inequality at the firm level increases with information and communications technology.

Suggested Citation

Brambilla, Irene, Digital Technology Adoption and Jobs: A Model of Firm Heterogeneity (January 31, 2018). World Bank Policy Research Working Paper No. 8326, Available at SSRN: https://ssrn.com/abstract=3115833

Irene Brambilla (Contact Author)

Universidad Nacional de La Plata ( email )

La Plata, Buenos Aires 1900
Argentina

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