Technology, human capital and labor demand

SAVVIDOU, Eleni, 2006, Technology, Human Capital and Labor Demand, Department of Economics, Uppsala University, Economic Studies 93, 151 pp, ISBN 91-85519-00-6.

This thesis consists of an introduction and four self-contained essays.

Essay 1 (with Gudmundur Gunnarsson and Erik Mellander) investigates unlike previous analyses (i) possible externalities in the use of IT and (ii) IT and human capital interactions. Examining, hypothetically, the statistical consequences of erroneously disregarding (i) and (ii) we shed light on the small or negative growth effects found in early studies of the effects of IT on productivity growth, as well as the positive impacts reported more recently. Our empirical analysis uses a 14-industry panel for Swedish manufacturing 1986-95. We find that human capital developments made the average effect of IT essentially zero in 1986 and steadily increasing thereafter, and, also, generated large differences in growth  effects across industries.

Essay 2 (with Erik Mellander) investigates how changes in age structure and educational composition affect productivity growth, when educational levels are controlled for. A cost function framework is employed where workers are primarily distinguished by level of education but age and field-of-study also matter for effective labor input. The empirical analysis is based on industry data for the Swedish manufacturing sector 1985-1995. Comparisons of projections of total factor productivity growth based on alternative specifications of age structure and field-of-study composition are made for the period 1996-2005. Age structure changes matter more for growth than changes in fields-of-study composition. Substituting low- and semi-skilled workers that are at least 50 years old for workers below 30, increases growth. Increasing the share of technicians and engineers also has a positive effect. Overall, the effects are small, however: over the ten year period considered they do not increase or decrease the accumulated growth by more than one percentage point.

Essay 3 investigates whether capital-skill complementarity is the explanation for skill-biased technical change. For this to be the case, capital-skill complementarity must exist in the first place and, secondly, all technical change must be embodied, i.e. embedded in new capital equipment. To test if these conditions are satisfied, a capital-age adjusted translog production function incorporating both embodied and disembodied technical change is implemented on a 14-industry panel for Swedish manufacturing 1985-95. The findings cast doubt on the claim that capital-skill complementarity can explain sill-biased technical change. In several industries, the capital-skill complementarity hypothesis is not supported. Moreover, it is found that the demand for skilled labor is affected by both disembodied and embodied technical change. An additional important result is that there is a negative skill-bias associated with embodied technical change.

Essay 4 uses a parametric shadow cost function approach to investigate the existence of allocative inefficiencies in the IT-sector caused by a shortage of workers within this sector, both across education levels of the workers, over time, and compared to the rest of the sectors in the economy. For this purpose a 19-industry panel for the Swedish economy for the years 1985-95 is used. The results suggest that while there are no allocative inefficiencies in the non IT-sector, this is not true in the case in of the IT-sector. The shortage of workers within this sector seems to have caused under-utilization of semi-skilled labor and over-utilization of skilled-labor. Further, allocative inefficiency in the IT-sector seem to have decreased considerably after the burst of the so-called IT-bubble in the year 2000. Another interesting result is that the additional costs caused by allocative inefficiency in the IT-sector seem to have been negligible.