Nick Bloom, Stanford University, Labor Topics, LABOR TOPICS Nick Bloom Technology and Labor Markets

Nick Bloom, Stanford University, Labor Topics, 2011 First note this is a cited literature – eg AKK 2

Nick Bloom, Stanford University, Labor Topics, IT and skills complementarity in micro data My overall view on the evidence for IT driving SBTC

Nick Bloom, Stanford University, Labor Topics, 2011 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 4

Nick Bloom, Stanford University, Labor Topics, 2011 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 5

Nick Bloom, Stanford University, Labor Topics, IT and skills complementarity in micro data The evidence for IT driving SBTC

Nick Bloom, Stanford University, Labor Topics, 2011 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) 7

Nick Bloom, Stanford University, Labor Topics, 2011 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)

Nick Bloom, Stanford University, Labor Topics, 2011 Incredibly well cited paper for its vintage…

Nick Bloom, Stanford University, Labor Topics, 2011 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.

Nick Bloom, Stanford University, Labor Topics, 2011 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….)

Nick Bloom, Stanford University, Labor Topics, 2011 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 ∂ 2 Q/∂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 β 3 >0 in: log(Q) = β 0 + β 1 log(IT) + β 2 log(O) + β 3 log(IT)×log(O) +…… (2) Exploiting the implication of optimality (FOCs), which implies IT and O should be correlated in levels, for example β 1 >0 in: log(IT) = β 0 + β 1 log(O) + …..

Nick Bloom, Stanford University, Labor Topics, 2011 BBH report evidence for complementarities between IT and decentralization in the production function

Nick Bloom, Stanford University, Labor Topics, 2011 BBH report evidence for correlations of IT factor intensity and decentralization

Nick Bloom, Stanford University, Labor Topics, 2011 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)