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ICT Adoption Increases Demand for High-Skilled Labor

Since the 1990s, some academics have been arguing that the widespread adoption of computers will change demand for the labor of both low- and high-skilled workers. According to one of the most popular theories in labor economics, commonly known as the theory of routine-biased technological change, this is what has been happening in the economy because of the adoption of ICT technologies:

  1. computers have replaced routine tasks, and
  2. computers have been complementing non-routine analytical and interactive tasks.

This is good news for high-skilled workers, and less good news for low-skilled workers, whose tasks seem to be in danger of being replaced by computers, leaving them with fewer routine tasks to perform for smaller paychecks.

Routine-biased technological change is not an easy topic to study, and until now, researchers have been relying on country-level and industry-level data to examine these questions. The problem with this type of data is that it is easily confounded by other factors, for example, the replacement  of low-skilled workers with an offshore workforce. In other words, it is possible that a country’s demand for low-skilled workers decreases not as a result of the adoption of computer technologies, but because some of the largest firms transfer routine tasks abroad.

In a recent paper, Petri Böckerman, Seppo Laaksonen, and Jari Bainiomäki found a novel approach to this problem by looking at firm-level data.  Because hiring and firing decisions are actually made at the firm level, this allowed them better to tease out the impact of technological change on workers than any of the previous attempts. Here is what they have found, using a dataset of Finnish firms:

  1. Routine-biased technological change has occurred in Finnish companies, especially in industries that invest in information and communication technological more heavily
  2. This technological change caused job polarization, with more demand for high-skilled workers, and less demand for low-skilled workers.
  3. Workers with medium levels of education were less affected if they performed more abstract tasks and less routine tasks.

The above may also provide further explanation for the theory that a “college degree is the new high school diploma”, a widespread view in labor policy circles. If computers are eliminating routine tasks and complementing abstract ones, a college degree is more likely to be a guarantee that a new hire can accomplish both.

You can find the full version of the paper here.

Contributed by Lili Török.

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