[2015-7] Effects of the Development of ICT on Labor Demand

Highly-skilled Technology Diffusion Labor Adoption
Research Department

The findings of existing studies on the relationship between technological development and labor demand suggest that the introduction of new technologies has caused an income gap in the labor market by enhancing demand mainly for highly-skilled labor. Considering the effects of technology adoption and diffusion, however, the impacts of technological development in creating demand for highly-skilled and highly-paid labor could be limited. This is because, while the demand for highly-skilled and highly-paid labor rises immediately after the introduction of a new technology, demand could then gradually shift toward that for low-skilled and low-paid labor as use of the new technology through simple operations becomes possible.

Meanwhile, the existing studies of related cases in Korea have also analyzed that demand for highly-skilled and highly-paid labor has risen and income gaps in the labor market widened as the level of technology has increased. In line with this, we look closely in this paper into the relationship between technological development and demand for labor requiring different levels of skill in Korea, through industrial panel analyses, and suggest some future implications for labor policy.

First, we regard investment in the Information & Communication Technology (ICT) sector as the criterion for Korea’s technology level, since that sector has great effects in boosting productivity and improving the industrial structure. In addition, together with the education level as has been used in previous studies, we adopt repetitiveness of job duties as a criterion for classifying the level of skill of labor. This is because, given Korea’s high rate of university enrollment, there is a possibility of the demand for highly-skilled labor being overestimated if university graduates are employed in jobs requiring lower levels of education.

The results of empirical analysis show that, if the criteria for the level of skilled labor demanded are education level and the repetitiveness of job duties, technological development boosts demand for highly-skilled labor in its early stage in all cases (complementary relationship), but its influence then gradually tapers off. The results of panel analysis of various industries, classified based on the proportions of ICT investment within them, also indicate that the complementary relationship between technological development and the demand for highly-skilled labor has weakened. In particular, this weaker complementary relationship is more pronounced in industries in which ICT investment is high, including the broadcasting communication and educational services industries. This implies a possibility that the effects of technology adoption and diffusion could appear more rapidly in the ICT-intensive industries.

Judging from these results of analysis, it seems necessary when establishing and implementing future labor policies to consider the adoption-diffusion effects of technology. The existing labor policies have focused on the retraining of low-skilled labor and facilitating their moving smoothly up the ladder to highly-skilled labor. If the adoption-diffusion effects are considered, however, these labor policies cannot help but have limitations in industries and economies where demands for highly-skilled labor have declined relatively as their adoption-diffusion effects have progressed sufficiently. Therefore, in economies and industries where creating additional demand for highly-skilled labor is difficult, it is thought necessary to actively explore measures for utilizing their existing highly-skilled workers, while at the same time expanding investment for development of new technologies further in order to generate sustained demand for highly-skilled labor.

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