The impact of digital technology on worker tasks: Do labor policies matter?

Between 1999 and 2006, Brazilian cities experienced strong growth in the provision of internet services, driven in part by the privatization of the telecommunications industry. A main concern of policymakers is that digital technology replaces routine, manual tasks, displacing lower-skilled workers that mainly perform these tasks. In Brazil, stringent labor market institutions exist to protect workers from such displacement; but, by increasing formal labor costs, labor market regulations also constrain firms from adjusting the workforce to perform new tasks, and fully benefiting from technology adoption. We exploit administrative and survey data, and a triple differences methodology, to show that digital technology adoption shifts labor demand toward the increased performance of non-routine activities and use of cognitive abilities in high-tech industries (those poised to adopt the new technologies) relative to low-tech industries. Furthermore, and in contrast with labor market policy intentions, we show that de facto labor regulations differentially support the use of tasks typically associated with more skilled workers, particularly those workers employed in non-routine and cognitive tasks. Our results point to important changes in the future of labor markets in middle-income settings and warn for distortive and unintended consequences of strict labor market policies.