Demographic change, firm costs, and digital transformation

Abstract

We investigate the impact of aging on enterprise digital transformation in China. We find that aging significantly inhibits the digitalization level of enterprises. Mechanism analysis shows that aging is unfavorable to the digital transformation of enterprises by raising their labor costs, such as reducing the skilled labor supply, increasing wages and the relative prices of skills, and raising job training expenditure. Heterogeneity analysis shows that the negative impact of aging is more significant for firms facing stronger financing constraints, non-SOE firms, smaller scale firms, labor-intensive firms, and in the manufacturing and high-tech industries.