Can the concentration of technical talent in the largest companies explain the slow and concentrated adoption of digital technologies?

The adoption of frontier technologies is slow and dominated by large firms and establishments, a puzzle given the large increases in the productivity of these technologies and substantial declines in their prices.

A gap has emerged between digital ‘superstars’ – firms who have adopted these technologies, plan to continue investing in them, and have expanded in terms of employment – and other organisations who have not adopted these technologies and have no plans to do so anytime soon. These trends, if unchecked, could contribute to rising inequality, both between those who own large firms and those who do not, and between workers at the most productive firms and those working elsewhere.

This project explores a simple explanation for these trends, based on two ideas: first, that these technologies are complementary to the stock of technical talent hired by a firm and second, that hiring and retaining workers with the specialized technical skills to use them is expensive.

Under these assumptions, the ‘true cost’ of adoption of a frontier technology – the cost of the hardware or software plus the cost of the relevant human capital – can be particularly prohibitive for the small and medium enterprises which constitute well over 99% of all firms in the UK economy. This in turn can contribute to a “digital divergence” – as large firms willing to invest in the complementary human capital adopt new technologies, the increases in their productivity can allow them to further their dominance in output markets.

This project will evaluate the practical significance of the proposed hypothesis through the lens of a dynamic macroeconomic model of technology adoption. This model will allow us to understand the trade-offs associated with the standard policy toolkit for encouraging adoption – equipment purchase subsidies – and evaluate alternatives, such as public investments in worker upskilling and retraining as well as possible subsidies for small firms seeking to hire technical talent.

It will also have implications for how competition authorities should evaluate the links between product and labour market concentration – in particular, pointing out that concentration in technical labour markets can spill over into concentration in output markets.

Research questions

  • Can the facts that human capital is expensive to hire and retain, but also necessary to benefit from digital technology adoption, explain why adoption of technologies is slow and concentrated in large firms?
  • To what extent does the mechanism identified interact with the large decline in quality-adjusted ICT and software prices to produce rising labour and output market concentration?
  • What kinds of policies can encourage technology adoption and raise aggregate resources in a world of technology-human capital complementarities?

Method

This project will explore this link between human capital-technology complementarities, slow technology adoption and concentration through a wide range of methodological approaches and by combining a wide range of datasets.

  1. First, it will rely on microdata on vacancy creation to characterise the changing demand for skills.
  2. Second, it will use microdata on ICT stocks at establishments to more explicitly explore technology adoption.
  3. Third, it will rely on publicly available microdata on the US population to identify correlates of concentration of technical talent, including proximity to institutions that generate this technical talent.

Finally, the project will involve the creation of a dynamic general equilibrium model of technology adoption in the presence of human capital-technology complementarities and labour market frictions in the hiring of technical talent. The model will be used to evaluate alternative policies to support technology adoption, such as subsidies for human capital accumulation.

Researcher

Aniket Baksy
Digital Futures at Work Research Centre

Research outputs

Encouraging technology adoption requires human capital investments, not just subsidies
Aniket Baksy asks whether differing levels of investment in human resources underly differences in digital technology adoption between “digital superstars” and other firms.