Is ICT a Complement or Substitute? A Cross-Regional Study on the Impacts of ICT Access and Usage on Unemployment

Abstract

Information and communication technology (ICT) is fast becoming a key tool in driving sustainable development. Not only does it revolutionize the world economic structure, but ICT also promotes employment by paving the way for more and better jobs. However, the body of literature posits that ICT results in two conflicting impacts: compensation (positive) and substitution (negative). The fact that the unemployment level remained high even after the economic and financial turmoil of 2008 – 2009 triggers a global concern of whether ICT reshapes the labour market in a more positive or negative manner. Building on this problem, this study empirically estimates the impact of ICT access and usage on unemployment rate in five country groups, namely Africa, Americas, Middle East, Asia and Europe, over the 2006 to 2018 period. Using the dynamic panel data approach with Instrumental Variables (IV) and Blundell-Bond System Generalized Method of Moments (GMM) as the main estimators, this study found evidence consistent with the compensation theory where ICT reduces unemployment rate via several market mechanisms for all country groups except the Middle East.