This study deals with the impact of Information and Communication Technologies (ICT) on corporate performance, productivity and employment dynamics. Its objective is to summarise recent research results on this topic based on a literature review and to develop and test hypotheses using data from the e-Business Survey 2006 conducted by e-Business W@tch.
In this report, corporate performance is empirically measured in terms of turnover growth. The hypothesised relationship between ICT and turnover growth is straightforward: The implementation of new ICT and complementary investments can lead to innovations, and innovations are positively associated with turnover growth. In other words, innovative firms are more likely to grow. This holds for ICT- and for non-ICT-related innovations, as well as for process- and product-innovations. The empirical results support this view and indicate that innovative firms exhibit increasing turnovers significantly more frequently than non-innovative firms.
The relationship between ICT usage and profitability is more complex and contingent upon firm- and market-specific factors such as the timing of the investment relative to competing firms and the reaction of competing firms in the market. Hence, no general relationship between ICT usage and profitability can be hypothesised because profitability crucially depends on the respective competitive environment of each individual firm and its ability to limit imitation by rivals.
Although measurement problems and a debate about the sustainability of ICT-enabled productivity growth remain, there is now a growing consensus that ICT does have positive effects on labour- and total-factor-productivity. However, the effects vary greatly between sectors and countries. Furthermore, the link between ICT-investments and productivity is rather indirect, and positive effects are contingent upon additional complementary investments into innovation and human capital at the firm level. The empirical evidence reported here suggests that innovative firms are more likely to exhibit productivity increases at all stages of ICT development. Also, more advanced users of ICT are more likely to experience productivity gains. These results suggest that intense ICT usage combined with innovate activity are positively related to productivity growth at the firm level.
Whether the increasing use of ICT creates or destroys jobs remains a subject of debate. Theory suggests that the net impact depends on the relative strength of two competing effects: On the one hand, the use of ICT can lead to innovations, which can result in output growth and a concomitant growth in jobs. On the other hand, process innovation and ICT-related productivity gains imply that a given output level can be produced with less labour input. In addition, there can be substitution effects if new ICT-related products and services replace other, potentially more labour-intensive, products and service. Depending on which of these effects dominates, the net impact of ICT on job growth could be positive or negative. Furthermore, the net effect can vary between the firm level, the industry level, and the macroeconomic level. ICT as investment products can generate additional employment in some sectors and labour displacement in others. This is part of the structural changes that are caused by the diffusion of ICT in the economy, which will ultimately lead to a more efficient allocation of resources in the long run.
New empirical results based on firm-level data from the e-Business W@tch 2006 survey suggest a positive relationship between ICT-enabled innovations and employment growth. In addition, more advanced users of ICT in the sample are significantly more likely to increase employment than less advanced users of ICT. Finally, the empirical results suggest that firms with a high share of college-educated employees tend to be more advanced users of ICT, while the opposite holds true for firms with a lower share of college-educated employees. This is consistent with the view that a highly skilled workforce and intense ICT usage complement each other. This could lead to changes in the labour market, which over-proportionately benefit highly skilled individuals. However, because the e-Business W@tch 2006 survey does not cover all sectors of the economy, the results reported here cannot be extrapolated to the aggregate level.
This report concludes that ongoing action of public policy is mainly needed in two areas: