The adoption of digital technology and labor demand in the Indonesian banking sector

Abstract

PurposeThis study investigates the effect of digital technology adoption on labor demand in the Indonesian banking sector.Design/methodology/approachThis research uses bank-level survey data obtained from the Indonesia Financial Service Authority (OJK) for the period 2010–2017 using semiannual data. This research applies a panel data method using a fixed effect model.FindingsThis study results show that technology adoption affects labor demand significantly in all Commercial Bank Based on Business Activities (BUKU) levels of banks. Technology adoption tends to be a substitute for labor in BUKU I, BUKU II and BUKU III banks in the support and business units. In addition, technology adoption complements labor only in the business unit in BUKU IV banks.Research limitations/implicationsThis research uses a sample of only 40 banks at the regulatory levels of BUKU I, BUKU II, BUKU III and BUKU IV. These 40 banks account for more than 80% of the assets in the Indonesian banking sector.Originality/valueLiterature investigating the effect of the adoption of digital technology on labor demand in the banking sector is still rare in the Indonesian economy. Most of the previous research limited its area of study to the manufacturing industry. This research makes a vital contribution in measuring the adoption of digital technology and its effect on labor demand in the banking sector using the BUKU level classifications of banks.