By Elijah Asdourian, Alexander Conner, James Lee, Louise Sheiner
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IT investments grow sales faster than employment and increase market concentration
Investment in information technology is associated with increases in firm size, employment, and sales, according to Erik Brynjolfsson and Wang Jin of Stanford and Xiupeng Wang of Boston University. A 1% increase in IT intensity, measured by the IT capital expenditure per worker, was associated with a 0.056% increase in firm employment the following year and a 0.1% increase in sales. Notably, IT investments allow a firm to increase revenue more than employment, consistent with the “scale without mass” theory of digitization. Further, they find that IT investments are likely to lead to an increase in firm size; a 1% increase in IT intensity is associated with a 0.03% increase in the number of establishments. IT investments are thus one of the main driving forces for the increase in firm size, decline of labor share, growth of…