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Digital adoption, automation, and labor markets in developing countries

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  • Finkelstein Shapiro, Alan
  • Mandelman, Federico S.

Abstract

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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    13. Gulmira Andabayeva & Vasily Movchun & Mayya Dubovik & Gaziza Kurpebayeva & Xinyu Cai, 2024. "Labor market dynamics in developing countries: analysis of employment transformation at the macro-level," Journal of Innovation and Entrepreneurship, Springer, vol. 13(1), pages 1-14, December.
    14. LIU, Nian & GU, Xinhua & LEI, Chun Kwok, 2022. "The equilibrium effects of digital technology on banking, production, and employment," Finance Research Letters, Elsevier, vol. 49(C).
    15. Qu, Yingzi & Fan, Sha, 2024. "Is there a "Machine Substitution"? How does the digital economy reshape the employment structure in emerging market countries," Economic Systems, Elsevier, vol. 48(4).
    16. Xue, Qihang & Wang, Huimin & Wei, Jian & Bai, Caiquan, 2024. "Does the digital economy improve female autonomy?," Structural Change and Economic Dynamics, Elsevier, vol. 71(C), pages 193-207.
    17. Yao, Wenyun & Zhang, Yi & Ma, Jingwen & Cui, Guanghui, 2023. "Does environmental regulation affect capital-labor ratio of manufacturing enterprises: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 86(C).
    18. Maria Vagliasindi & Nisan Gorgulu, 2025. "Disentangling the Key Economic Channels through Which Infrastructure Affects Jobs," Policy Research Working Paper Series 11096, The World Bank.
    19. Zhao, Zhihui & Liu, Wei & Ning, Yiyi & Yang, Shiyu, 2024. "Can China go green through digitalization? Evidence from China's listed firms," International Review of Economics & Finance, Elsevier, vol. 94(C).
    20. Akira SASAHARA & Hiroaki MORI, 2021. "The Effects of Trade on the Gender Gaps: A Model-based Quantitative Investigation," Discussion papers 21076, Research Institute of Economy, Trade and Industry (RIETI).
    21. DeStefano, Timothy & Timmis, Jonathan, 2024. "Robots and export quality," Journal of Development Economics, Elsevier, vol. 168(C).
    22. Liu, Yi & Wu, Kai & Liang, Xiaoyun, 2024. "Does low-carbon pilot policy promote corporate green total factor productivity?," Economic Analysis and Policy, Elsevier, vol. 84(C), pages 1-24.
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    More about this item

    Keywords

    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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