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A Short-Run View of What Computers Do: Evidence from a UK Tax Incentive

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  • Gaggl, P
  • Wright, GC

Abstract

We study the short-run, causal effect of Information and Communication Technology (ICT) adoption on the employment and wage distribution, providing direct insight into how ICT alters the demand for work within the firm. We exploit a unique natural experiment generated by a generous tax allowance on ICT investments for small UK firms and find that the primary short-run effect of ICT is to complement non-routine congnitive-intensive work. At the same time, we find less extensive substitution for routine cognitive work, a result at odds with existing long-run extimates. We find no effect of ICT on manual work in the short run. Overall, ICT raises average labor productivity within the firm.

Suggested Citation

  • Gaggl, P & Wright, GC, 2014. "A Short-Run View of What Computers Do: Evidence from a UK Tax Incentive," Economics Discussion Papers 10012, University of Essex, Department of Economics.
    • Handle: RePEc:esx:essedp:10012
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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • 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
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • M15 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - IT Management
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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