Workers' Skill Level and InformationTechnology : Evidence from German Service Firms

Abstract

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 labourshare 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