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Digital adoption, automation, and labor markets in developing countries


  • Finkelstein Shapiro, Alan
  • Mandelman, Federico S.


We study how digital adoption by firms—a precursor to automation—shapes the labor market structure and worker outcomes in developing countries. Using a large sample of developing countries, we document a strong and negative link between firm digital adoption and self-employment rates. This relationship persists even after controlling for the level of development and other factors associated with the distinct employment structure of developing countries. In contrast, there is no link between digital adoption and unemployment rates. We develop a model with equilibrium unemployment, self-employment, endogenous firm entry, and information-and-communications technology (ICT) adoption, and show that positive linkages between the cost of technology adoption (and therefore technology adoption itself) and salaried-firm entry costs are crucial for rationalizing the empirical relationship between firm digital adoption and self-employment.

Suggested Citation

  • Finkelstein Shapiro, Alan & Mandelman, Federico S., 2021. "Digital adoption, automation, and labor markets in developing countries," Journal of Development Economics, Elsevier, vol. 151(C).
  • Handle: RePEc:eee:deveco:v:151:y:2021:i:c:s0304387821000353
    DOI: 10.1016/j.jdeveco.2021.102656

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    More about this item


    Information and communications technologies; Automation; Labor search frictions; Self-employment; Unemployment; Endogenous firm entry; Developing countries;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology


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