Are ICT displacing workers in the short run? Evidence from seven European countries

•We study the short run substitution effect of ICT use on firms' employment.•We use highly accurate quantitative measures of ICT use within firms.•We use a longitudinal dataset containing internationally comparable firm level data for seven European countries, covering manufacturing and services sectors.•We find no evidence that ICT substitutes labour in the short run.•The insignificant effect of ICT is very robust across ICT measures, countries and sectors. This paper examines the short run labour substitution effects of using ICT at firm-level in the manufacturing and services sectors in seven European countries, during the period 2007–2010. The data come from a unique dataset provided by the ESSLait Project on Linking Microdata, which contains internationally comparable data based on the production statistics linked at firm level with the novel ICT usage indicators. We adopt a standard conditional labour demand model and control for unobservable time-invariant firm-specific effects. The results show that ICT use has a statistically insignificant labour substitution effect and this effect is robust across countries, sectors and measures of ICT use. Our findings suggest that increased use of ICT within firms does not reduce the numbers of workers they employ.