A Quality-adjusted specification of labor is suggested which allow firms training to effect labor efficiency. To assess the cost and productivity effects, this specification is integrated into a flexible neoclassical cost function.

Unlike previous analyses, we consider (i) that IT may affect productivity growth both directly and indirectly, through human capital interactions, and (ii) possible externalities in the use of IT. Examining, hypothetically, the statistical consequences of erroneously disregarding (i) and (ii) we...