Information Technology, Low-Skilled Labor Reallocation, and Firm Exit - Evidence from the Polluting Industries in China

We examine the negative impact of information technology (IT) diffusion on polluting firms. In a partial equilibrium analysis, we demonstrate that the prevalence of IT leads to the outflow of low-skilled labor from the product sector to the service sector, which further raises labor costs for low-skill intensive industries (polluting industries). In empirical analyses, we argue that the diffusion of IT raises the probability of exiting the market for polluting firms using the Cox proportional hazards model. Furthermore, we find that the spread of IT contributes to the survival of exporters and firms with high labor productivity, but is detrimental to firms with a high proportion of low-skilled labor. For mechanism analyses, we provide evidence on the cross-sectoral reallocation of low-skilled labor due to IT diffusion at the firm, industry, and individual levels respectively