Digitalization During the COVID-19 Crisis: Implications for Productivity and Labor Markets in Advanced Economies

DigitalizationduringtheCOVID-19Crisis ImplicationsforProductivityandLaborMarketsinAdvancedEconomies PreparedbyFlorenceJaumotte,LongjiLi,AndreaMedici,MyrtoOikonomou,CarloPizzinelli,IppeiShibata,JiamingSoh,andMarina M.TavaresSDN/2023/003 IMFStaffDiscussionNotes(SDNs)showcasepolicy-relatedanalysisandresearchbeingdevelopedbyIMFstaffmembersandarepublishedtoelicitcommentsandtoencouragedebate.TheviewsexpressedinStaffDiscussionNotesarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF, itsExecutiveBoard,orIMFmanagement. 2023 MAR ©2023InternationalMonetaryFundSDN/2023/003 IMFStaffDiscussionNotes ResearchDepartment DigitalizationduringtheCOVID-19Crisis:ImplicationsforProductivityandLaborMarketsinAdvancedEconomies PreparedbyFlorenceJaumotte,LongjiLi,AndreaMedici,MyrtoOikonomou,CarloPizzinelli,IppeiShibata,JiamingSoh,andMarinaM.Tavares AuthorizedfordistributionbyPierre-OlivierGourinchasMarch2023 IMFStaffDiscussionNotes(SDNs)showcasepolicy-relatedanalysisandresearchbeingdevelopedbyIMFstaffmembersandarepublishedtoelicitcommentsandtoencouragedebate.TheviewsexpressedinStaffDiscussionNotesarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement. ABSTRACT: Digitalizationinducedbythepandemicwasseenbothasapossiblesilverliningtothecrisisthatcouldincreaselonger-termproductivityandariskforfurtherlabormarketinequalitybetweendigitalandnon-digitalworkers. Thisnoteshowsthatthepandemicaccelerateddigitalizationandtriggeredapartialcatch-upbylessdigitalizedentitiesinadvancedeconomies.Higherdigitalizationlevelssubstantiallyshieldedproductivityandhoursworkedduringthecrisis.However,theextenttowhichpandemic-induceddigitalizationledtostructuralchangeintheeconomyislessclear.Lessdigitalizedsectorshavereboundedmorestrongly,albeitafterstrongerdeclines,andwhileworkersindigitaloccupationsweremoreshieldedfromthecrisis,theredoesnotappeartobeastructuralchangeinthecompositionoflabordemand.Meanwhile,shiftsinlaborsupplyaremorelikelytobepermanent,drivenbytheincreaseinworkingfromhome. RECOMMENDEDCITATION:Jaumotteandothers.2023.DigitalizationduringtheCovid-19Crisis:ImplicationsforProductivityandLaborMarketsinAdvancedEconomies.StaffDiscussionNoteSDN2023/003.InternationalMonetaryFund,WashingtonDC. ISBN: 979-8-40023-2596 JELClassificationNumbers: J22,J23,J24,O33,O47,E24 Keywords: Digitalization,COVID-19,labormarket,productivity Author’sE-MailAddress: FJaumotte@imf.org;LLi4@imf.org;AMedici@imf.org;MOikonomou@imf.org;CPizzinelli@imf.org;IShibata@ifmf.org;JSoh@imf.org;MMendestavares@imf.org. TheauthorsthankAlimataKiniKaboréforeditorialassistance;RomainDuval,Pierre-OlivierGourinchas,andAntonioSpilimbergofortheirhelpful commentsandguidance;GraceB.LiforherinsightsandgenerouslysharingEuropeanDepartmentcountry-surveydataonRecoveryandResilienceFacilitygrantproposals;andYiJiforherresearchassistantsupportatthebeginningoftheproject.TheauthorsalsogratefullyacknowledgesupportfromLinkedIninmakingtheirdataavailableforthisStaffDiscussionNote.DatawereobtainedthroughtheDevelopmentDataPartnership(datapartnership.org),acollaborationbetweeninternationalorganizationsandprivatesectorcompaniestofacilitatetheefficientandresponsibleuseofthird-partydataininternationaldevelopment. Contents ExecutiveSummary4 I.Introduction5 II.StylizedFacts7 III.Productivity10 III.1DigitalizationandLaborProductivity11 III.2DigitalizationandFirmTotalFactorProductivity13 IV.LaborMarkets15 IV.1DigitalizationandSectoralEmployment16 IV.2DigitalOccupations17 IV.3TheImpactofCOVID-19onDigitalLaborDemand19 IV.4TheEffectsofDigitalizationonLaborSupply21 V.PolicyRecommendations24 VI.Conclusion25 BOXES Box1.AlternativeMeasuresofDigitalization27 Box2.MeasuringtheEvolutionofDigitalSkillsUsingDatafromLinkedIn28 FIGURES Figure1.LaborProductivityandLaborMarketTightness5 Figure2.Covid-19HasAcceleratedDigitalizationinAdvancedEuropeanCountries9 Figure3.DigitalIntensityIncreasedintheUS10 Figure4.Covid-19HasImpactedNegativelyLaborProductivity11 Figure5.RegressionResultsonLaborProductivity12 Figure6.EvolutionofFirms’TotalFactorProductivity14 Figure7.Firms’ICTIntensityHasIncreasedSince201915 Figure8.RegressionResultsonTotalHoursWorked16 Figure9.DigitalOccupations17 Figure10.RegressionAnalysisoftheEffectofCovid-19onEmploymentinDigitalannon-Digital Occupations18 Figure11.ShareofVacanciesinDigitalOccupationsinAdvancedEconomies19 Figure12.RegressionAnalysisofCovid-19ExposureandVacanciesforDigitalOccupations20 Figure13.TrendsinWorkingfromHome21 Figure14.WorkingfromHomeandLaborForceAttachment22 Figure15.TheLaborSupplyImplicationsofWorkingfromHome23 Figure16.TheRoleofPoliciesonDigitalization24 REFERENCE52 ANNEXES Annex1.DataSources,SampleCoverage,andVariableDefinitions29 Annex2.DigitalIntensityDecomposition38 Annex3.ProductivityRegressionAnalysis39 Annex4.EmploymentRegressionAnalysis46 Annex5.VacanciesRegressionAnalysis48 Annex6.WorkingFromHome49 Annex7.BoxA151 ExecutiveSummary AttheonsetoftheCOVID-19pandemic,policymakersandacademicsalikeexpectedthatthepandemicandsubsequen