Are information and communication technologies (ICTs) displacing workers? The relationship between ICT investment and employment

Abstract

This study examined how information communication technologies (ICT) investment affected sales and employment at 76 small and medium-sized Korean companies during 2009-2013. Especially, this study investigated the effects of ICT investment on sales in general and by subsets of investment in hardware, software, and ICT staff. Studies normally assumed a standard Cobb-Douglas production function, and measured variables in logarithms. In line with previous studies, we assumed that firms produced output, performance, or productivity via a Cobb-Douglas production function model with inputs capital and labor. We then suggested a new model that could be incorporated into the production function above to estimate the effect of the interaction between ICT investment and labor on sales. This study found that hardware investment complemented labor in increasing performance, whereas investments in software and ICT staff substituted labor. These results show that ICT investment might affect firm-level employment, and what business managers must consider insofar as each subset of ICT investment exerts differing effects on firm-level employment. This study also found that the effect of ICT investment on firm-level employment might be more pronounced among smaller firms and firms outside the IT industry. This study also demonstrated that ICT investment complemented labor and that the effects differed for specific types of ICT. This study can help managers respond to the challenges of ICT investment or employment, and provides a framework for analyzing the strategic significance of ICT investment and employment.