Digital technology adoption and jobs: a model of firm heterogeneity

Abstract

We develop a theoretical framework that expands the task-based models of technical progress and labor markets to allow for firm heterogeneity and wages that vary across firms. Our model is compatible with the empirical observation that more productive firms are larger, are more skill intensive, and pay higher wages across skill categories. Regarding investment in ICT, our model predicts that the decision to invest in ICT depends on firm size and labor market characteristics. As a result of investment in ICT firms grow, become more intensive in complex tasks, and become more skilled intensive as long as skilled labor is complementary to ICT. Workers that remain employed are better off because their wage increases with ICT. To the extent that skilled workers have more bargaining power than unskilled workers, or that their wage scheme is more tied to firm performance, wage inequality at the firm-level increases with ICT.