This paper analyses the link between human capital and information technology (IT) in the service production process. The analysis is based on 1994 cross-sectional data for 1929 German firms drawn from the first wave of the Mannheim Service Innovation Panel (MIP-S). Factor demand functions are used to analyse the determinants of the firm-specific skill structure. The empirical evidence indicates that firms with a higher IT investment to sales ratio employ a larger fraction of high-skilled workers. The relationship between IT investment and medium-skilled labour is rather weak while the unskilled labour share is negatively related to the IT investment to sales ratio. Using a translog production function to assess the productivity of different input factors, we find that human and information capital provide the most powerful contributions to output in the service sector.
Falk, Martin and K. Seim (1999), Workers Skill Level and Information Technology - Evidence from German Service Firms, ZEW Discussion Paper No. 99-14, Mannheim. Download