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LABOR TOPICS Nick Bloom Technology and Labor Markets. First note this is a cited literature – eg AKK. My overall view on the evidence for IT driving SBTC. IT and skills complementarity in micro data. Worth noting that no bullet proof evidence exists on IT and skills complementarity.
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My overall view on the evidence for IT driving SBTC IT and skills complementarity in micro data
Worth noting that no bullet proof evidence exists on IT and skills complementarity • I personally believe that IT is responsible for SBTC • But worth pointing out almost no causal evidence – as in experimental (field or natural) – exists (as far as I know) • So more of a smoking-gun type evidence, with lots of anecdotal evidence and suggestive correlations • But these are problematic: • Di Nardo and Pischke (1997) on pencils • Doms, Dunne and Troske (1997) on cross-sectional vs panel results, and hi-tech capital v computers
Also a changing field, with for example trade an increasingly important role • Consensus for data up to late 1990s was that trade played little/no role (e.g. Berman, Bound and Griliches 1994, Machin and Van Reenen, 1998, AKK 1998) • Even Krugman (1995) argued that factor input share of trade was too small to explain labor market change • But trade has been growing rapidly, and Bloom, Draca Van Reenen (2010) finds by about 2005 LDC trade can maybe explain about 20% of increasing computerization • So SBTC may span broader themes, including polarization and trade effects
The evidence for IT driving SBTC IT and skills complementarity in micro data
Probably best evidence I think for IT role in SBTC comes from micro data • A number of studies have delved into the workplace to try and observe direct effects of IT on worker productivity • For example, Bartel, Ichniowski and Shaw (2007, QJE) look at valve making factories and show that IT: • Enables firms to be more flexible in production runs (reduces set-up times, so can change more often) • Requires more skilled employees to operate it • Today will focus on best known micro-data paper on this topic, Bresnahan, Brynjolfsson and Hitt (2002 QJE)
Tim Bresnahan, Erik Brynolfsson and Lorin Hitt “Information technology, workplace organization and the demand for skilled labor: firm-level evidence” Quarterly Journal of Economics (2002)
Bresnahan, Brynjolfsson and Hitt (2002) provided econometric evidence on the link IT and organization • Collected new data on IT use and organization in firms, to go beyond ‘case-studies’ • Estimated the direct and interaction effects in a panel of firms: • IT and organizational change are complementary with each other (the big result, in hindsight) • These are both skill biased (result we are focusing on) • A very important paper. Provided the first good evidence on IT and organizational complementarities – something that appears to play a major role in explaining US growth • Interestingly, identification is very weak, so sold on data & idea.
They first collected new data on IT and organizations • Ran a telephone survey on organisational structure and skills on a sample of 780 firms which they had both IT and accounts data for • 380 of these firms responded – providing their empirical data of matched IT, organization and accounting information • There are some issues with measurement and identification: • Sample selection (IT and Org responding firms) • Cross-sectional (organization and skills data) • No natural identification in data (no big experiment, discontinuity, treatment group etc….)
Test complementarity estimating correlations and production function results Assume IT and O are two factors of production Q=F(IT,O,X) where X is all other factors Complementarity of IT and O in production assumes the following ∂2Q/∂IT∂O > 0 (like supermodularity) Examining this typically involves testing for two things: (1) Estimating the interaction directly in (some second-order Taylor expansion of) the production function, for example β3>0 in: log(Q) = β0 +β1 log(IT) + β2 log(O) + β3 log(IT)×log(O) +…… (2) Exploiting the implication of optimality (FOCs), which implies IT and O should be correlated in levels, for example β1>0 in: log(IT) = β0 +β1 log(O) + …..
BBH report evidence for complementarities between IT and decentralization in the production function
BBH report evidence for correlations of IT factor intensity and decentralization
Conclusion Paper which has had a huge impact from being ‘first to market’ in providing empirical support for a key stylized fact How did they do it – by collecting their own data This is another area for fertile research – collecting new data to build on current data sets (firms, industries or even countries)