Relationship between Labor Regulations and Investment for Technology: Analysis of the effect of labor regulation change for investment of capital and information technology

The rapid advancement of information technology and artificial intelligence will cause the dynamic change of the economic structure. To respond to significant changes in such situation, we need more investment in new technology. So far, many researchers have attempted to reveal the factors affecting firms' capital investment behavior. In addition, some researchers focus on the relationship between labor regulations and capital investment. Previous studies can find the existence of the relationship between labor regulations and capital investment using the dataset of Western countries. However, labor institutions in Western countries differ from those of Japan. Moreover, previous studies did not consider the effect of labor regulation to an investment of information technology. In this analysis, we analyze the relationship between labor regulations and firms' investment for technology (capital and information technology) in Japan. Our results show that the more strict regulation of regular workers increases the capital investment made by firms. On the other hand, our results also imply that tightening the regulation of temporary workers increases their usage of information technology.