How Does ICT investment affect Employment and Productivity? Evidence from a Japanese Tax Incentive

In this paper, we estimate the causal link between the implementation of information and communication technology (ICT) investments and firm employment and productivity. The empirical results obtained from the instrument variable estimation using the two governmental compulsory surveys and exogenous tax shocks possibly affecting firm ICT investment suggest, first, that increases in ICT investment did not decrease the number of firm-level employees. Second, in fact, the increase in ICT investment positively affected the share of in-house ICT-related employees. Third, we observed a limited causal link between ICT investment and firm productivity over a short term. These results jointly suggest that the increase in ICT investment, which was possibly encouraged by the tax reform, led to the reallocation of in-house employees from jobs not closely connected with ICT to ICT-related jobs in short periods.