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Twisting the Demand Curve: Digitalization and the Older Workforce

Erling Barth (), James Davis (), Richard Freeman () and Kristina McElheran

No 28094, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper uses U.S. Census Bureau panel data that link firm software investment to worker earnings. We regress the log of earnings of workers by age group on the software investment by their employing firm. To unpack the potential causal factors for differential software effects by age group we extend the AKM framework by including job-spell fixed effects that allow for a correlation between the worker-firm match and age and by including time-varying firm effects that allow for a correlation between wage-enhancing productivity shocks and software investments. Within job-spell, software capital raises earnings at a rate that declines post age 50 to about zero after age 65. By contrast, the effects of non-IT equipment investment on earnings increase for workers post age 50. The difference between the software and non-IT equipment effects suggests that our results are attributable to the technology rather than to age-related bargaining power. Our data further show that software capital increases the earnings of high-wage workers relative to low-wage workers and the earnings in high-wage firms relative to low-wage firms, and may thus widen earnings inequality within and across firms.

JEL-codes: J0 J01 J11 J2 O0 O32 O33 (search for similar items in EconPapers)
Date: 2020-11
New Economics Papers: this item is included in nep-lab
Note: AG LS
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Published as Erling Barth & James C. Davis & Richard B. Freeman & Kristina McElheran, 2022. "Twisting the demand curve: Digitalization and the older workforce," Journal of Econometrics, .

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