Effects of Information Technology and Aging Work Force on Labor Demand and Technological Progress in Japanese Industries: 1980-1998

Abstract

The purpose of this paper is two-folds. First, we examine the direction and the magnitude of substitutability or complementarity between information- and communication-related capital stock and various labor inputs to know about differential impacts of information and com-munication technology on labor demand. In this way, we can obtain information about what segments of workers information and communication technology can effectively substu-tute for. Second, we estimate contribution of information- and communication-related capital stock and various labor inputs on the value-added growth of the Japanese economy in the recent turbulent era (1980s and 1990s) and explore factors determining technological progress. In particular, we investigate whether rapid accumulation of information-related capital stock has a positive effect on technological progress, examining IT externality. We also discern the effect of compositional changes in labor inputs on technological progress, examining the inflexibility issue and IT-induced technological obsolescence issue. Three remarkable facts emerge from our result with respect to substitutability/complementarity issues. First, IT capital stocks are shown to be significant substitutes for young workers with a low education level, whereas old workers with a low education level are consistently quasi-fixed in all industries under investigation. Second, IT capital stocks have complemen-tary relationship with workers with a high education level in many industries. Third, workers with a high education level and those with a low education level are substitutes. These all suggest that IT investment and human capital accumulation are of utmost importance to overcome possible shortage (in relative terms) of young workers with a low education level caused by rapidly aging population. As for IT externality, we find at first positive correlation between IT stocks and techno-logical progress in manufacturing, suggesting a strong externality effect of IT capital stocks. In the first glance it is very promising, since this suggests that this IT externality can be used for boosting productivity growth. However, the correlation is not robust. First, if non-manufacturing industries are included, the correlation vanishes. Second, if "Electrical Machinery" is excluded from the sample of manufacturing, the correlation also vanishes. Thus, we fail to discern clear-cut evidence for IT externality. Thus, the proposition that IT "revolution"can pop up productivity growth and can counter the pressure of aging population is not supported by our data, although investment in IT-producing industries is surely an important driving force for economic growth through substitution effects. As for the effect of labor force composition on the rate of technological progress, the results do not support that the "inflexible old worker" hypothesis of productivity slowdown. There is no correlation between the rate of technological progress and the ratio of old workers with low education in the total labor inputs. However, the results suggest that information technology development in the 1990s has a negative impact on the past strength of the Japanese economy: productivity increase through high-education workers' learning by doing. In manufacturing industries where Japan has been strong, the rate of technological progress in the 1980s has positive (though weak) correlation with "maturing" high-education labor force. That is, the ratio of old well-educated workers in the total labor inputs has a positive (though weak) effect on technological progress. This suggests that the increased average skill among well-educated workers due to longer experience has a positive effect to improve productivity. However, the relationship changes significantly in the 1990s, and we have rather negative relationship. The nature of technological progress apparently changed adversely.