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Title: Is Information Technology Hurting Labor?

Citation Type: Miscellaneous

Publication Year: 2015

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Abstract: This paper contributes to the debate over the relationship between capital deepening and the aggregate labor share from the sectoral perspective. The study focuses on a specific group of equipment capital: information and communication technology (ICT) capital and exploits the sectoral heterogeneities in the labor share trends, paces of ICT capital specific technological progress and occupational compositions of labor used in production (routine and non-routine) to characterize the conditions under which the surge in ICT capital cause the labor share to fall. Allowing for sectoral differences in substi-tutabilities between ICT capital and types of labor, I document significant capital-task complementarity at each sector. An interesting empirical finding is that the decline in ICT capital prices turns out to have a positive impact on the labor share. However, the income gains enjoyed by labor devoted to non-routine task occupations are offset by the losses of labor employed in routine task occupations when a sector has: (i) initially high load of employment in routine task occupations, and (ii) weak absolute complementar-ity between ICT capital and labor working in occupations associated with non-routine tasks. Since sectors satisfying these two conditions have compromised the majority of the economy, the aggregate labor share has exhibited a downward trend so far, leading to the illusion that information technology has been hurting labor. However, there are two promising facts concerning the future: in one hand, the share of these sectors in value added is persistently falling and on the other hand, the share of routine task employment continues to fall at every sector. Thus, the decline in the labor share can be considered as a temporary consequence of our transition to the new information economy triggered by cheapening of ICT capital. Once the structural shifts and within sectoral adjustments are completed, the decline in the labor share should revert back.

Url: http://www.musaorak.com/wp-content/uploads/2015/11/laborshare_sector_paper_draft.pdf

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Authors: Orak, Musa

Publisher: University of California, Los Angelos

Data Collections: IPUMS CPS

Topics: Labor Force and Occupational Structure, Other

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