Does Information Technology Substitute for or Complement Human Labor? A Dynamic Stratified Analysis on European Countries

ABSTRACT The interaction between information technology (IT) and human labor in manufacturing and service provision has always been a topic of much debate. Anchored from the skill‐biased technological change theory and the organizational complementarity theory, this study proposes a dynamic stratified analysis and argues that the relationship between IT and labor is more nuanced than what has been conceptualized in prior literature. We find that IT can not only substitute for human labor but also can complement it—the exact nature depends on the skill levels of the labor. In addition, as the capability of IT continues to grow, the substitution/complementarity relationship between IT and labor evolves over time. We test our hypotheses using the EU KLEMS dataset covering 31 industries from 13 EU countries from year 1970 to 2005. The findings shed light on the nature of interaction between IT and human labor and contribute to both the information systems literature and the operations management literature by providing a deeper understanding on how IT can influence labor input, tasks, jobs, and productivity.