IT investment and labor displacement: Evidence from Korea

Abstract

There is widespread concern that many companies heavily invest in IT, such as artificial intelligence (AI) and cloud technologies, in order to replace human labor. Using novel Korean data, we verify whether such an effect is present in the cross-sectional variation among firms’ IT investment and workforce size. At the firm level, the economy-wide effect of doubling IT investment per worker is associated with a reduction of over 60 workers in total workforce size. Meanwhile, IT investment seems to be enhancing productivity, as reflected in its positive association with both the total salary bill and the average wage per capita. The overall effect of IT investment appears to be a decrease in the labor share. Despite the strong government-led push for the adoption of new IT technologies during the same period, the analysis suggests that this effort should be complemented by additional policy measures to mitigate the potential impacts of reduced human involvement in production.