Information Technology as a Catalyst to the Effects of Education on Labor Productivity

The age structure of the population in most countries has been changing rapidly, and many countries are becoming knowledge-based economies where the generation and use of information as a critical input to value creation are becoming increasingly important. While a decline in the dependency ratio provides a window of opportunity for many young economies, we show evidence in support of the position that relying entirely on changes in population structure may not be sufficient to increase productivity, especially as national economies become increasingly knowledge-based. Using fixed-effects panel regression on data from 121 countries for the period 1990 to 2017, we estimated log values of labor productivity with respect to log values of capital per worker, labor force size, population size, education, and internet use. We found education and internet use both having a positive relationship with labor productivity. We also found significant positive interaction effects between education and internet use. This suggests that information technology, as represented by internet use, enhances the positive impact of human capital, particularly education, on labor productivity. Thus, policies that are geared towards improving labor productivity should consider the complementary relationship between information technology and human capital. Concurrently improving human capital and the use of information technology is essential to maximize productivity gains and harness the demographic dividend, especially for countries transitioning to knowledge-based economies