Substitutability between Digital and Human Capital in the Context of Aging: An Analysis of the Korean Economy

This study investigates the substitutability and complementarity between digital capital and labor in the context of an aging workforce in South Korea, focusing on information and communications technology (ICT) capital. ICT capital encompasses both tangible and intangible assets that facilitate digital transformation (DX), and firms in every sector of the economy have rapidly accumulated this kind of capital. Digitalization has never been more intense than it is now, and this makes it essential to assess whether labor is complemented or substituted by such capital. Using a multi-product joint cost function, we estimate cross-price elasticities among ICT capital, non-ICT capital, and two groups of labor: older and younger workers. The empirical results indicate that ICT capital substitutes for older workers, though the magnitude of this effect has weakened over time. In contrast, the substitutability between ICT capital and younger workers is statistically insignificant. Furthermore, non-ICT capital generally complements both age groups in the labor force. These findings carry major implications for policy, and can help inform measures designed to facilitate DX in industries with aging demographics.