New Evidence on the Effect of Technology on Employment and Skill Demand

131 Pages Posted: 27 Apr 2022 Last revised: 9 May 2022

See all articles by Johannes Hirvonen

Johannes Hirvonen

ETLA, Research Institute of the Finnish Economy

Aapo Stenhammar

Aalto University

Joonas Tuhkuri

Massachusetts Institute of Technology (MIT)

Date Written: May 6, 2022

Abstract

We present novel evidence on the effects of advanced technologies on employment, skill demand, and firm performance. The main finding is that advanced technologies led to increases in employment and no change in skill composition. Our main research design focuses on a technology subsidy program in Finland that induced sharp increases in technology investment in manufacturing firms. Our data directly measure multiple technologies and skills and track firms and workers over time. We demonstrate novel text analysis and machine learning methods to perform matching and to measure specific technological changes. To understand our findings, we outline a theoretical framework that contrasts two types of technological change: process versus product. We document that the firms used new technologies to produce new types of output rather than replace workers with technologies within the same type of production. The results contrast with the ideas that technologies necessarily replace workers or are skill biased.

Keywords: technology, labor demand, skills, industrial policy

JEL Classification: J23, J24, O33, O25, H25

Suggested Citation

Hirvonen, Johannes and Stenhammar, Aapo and Tuhkuri, Joonas, New Evidence on the Effect of Technology on Employment and Skill Demand (May 6, 2022). Available at SSRN: https://ssrn.com/abstract=4081625 or http://dx.doi.org/10.2139/ssrn.4081625

Johannes Hirvonen

ETLA, Research Institute of the Finnish Economy ( email )

Lonnrotink. 4 B
FIN-00120 Helsinki, 00120
United States

Aapo Stenhammar

Aalto University ( email )

P.O. Box 21210
Helsinki, 00101
Finland

Joonas Tuhkuri (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

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