The impact of technological progress on labor market inequality in the Portuguese ICT sector

Abstract

The rapid acceleration of technological progress in recent years not only resulted in innovation and new products but also significantly impacted the labor markets. Existing literature on the US and other Western nations shows that technology leads to a significant increase in labor market inequality. We investigate how technology impacts the inequality in the Portuguese labor market and hereby focus on the Information and Communications Technology (ICT) sector as it is most susceptible to technological progress. Our analysis is based on two administrative datasets from the Portuguese Statistical Institute (INE) that incorporate all firms and employees in our target market between 2004 and 2017. Our research aims to understand the influence of large corporations that benefit from technology onto the labor market as well as the impact of automation on the return to skill. Consistent with current research, we find a negative influence of market concentration on the labor share. However, unlike the US, the Portuguese ICT sector's labor share increases significantly as large firms decrease in their output share. Further, we observe a decrease in the wage premium for high-skill workers. Hence, the development of indicators represents a significant decrease in the labor market inequality in Portugal's ICT sector. We do not infer causality yet discuss the extensive growth of high-skill employment in the ICT sector as a plausible explanation. We also hypothesize that a shift in the high-skill characteristics or a skill mismatch between university graduates and labor market demand is causal for decreasing inequality.

Date of Award	13 Oct 2020
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Miguel Godinho de Matos (Supervisor)