To What Extent Are Labor‐Saving Technologies Improving Efficiency in the Use of Human Resources? Evidence from the Banking Industry

Abstract

With special reference to the banking industry, the objective of this study is to address managerial concerns over the impact of labor‐saving technologies on efficiency in the use of human resources. A bank is viewed as a collection of human, technology, and capital resources. Labor‐saving technologies are represented by two categories of technology resources—information technologies and patented in‐house process innovations. The estimation of a stochastic frontier manpower‐requirement function shows that, whereas information technology resources have a direct impact on efficiency in the use of human resources, in‐house process innovations have an indirect impact through spillovers. The reduction in labor costs resulting from a more efficient use of human resources is more than enough to cover the required increase in information technology expenditures. This cost‐reducing impact is stronger for firms currently employing a lower level of information technologies. The empirical findings also suggest a complementary relationship between information technologies and spillovers of in‐house process innovations. The empirical framework proposed in this study can help decision makers determine the optimal input mix of technology and human resources.