Workers’ skill level and information technology: a censored regression model

Abstract

This paper analyses the link between educational qualification structure and information technology (IT) in the service production process. The analysis is based on 1996 cross‐sectional data for approximately 1,000 West German firms. The empirical evidence indicates that IT capital and high‐skilled labor are complements in the production process: firms with higher IT investment output ratios employ a larger fraction of high‐skilled workers at the expense of unskilled workers. To a lesser extent, the positive IT effect carries through for workers with vocational degrees including masters and technicians. Furthermore, we find that firms’ expectations of the future size of their high‐skilled workforce are positively related to their initial IT investment output ratio. To account for censoring in the employment variables, the empirical analysis uses Powell’s Censored Least Absolute Deviations estimators as well as standard Tobit estimators.