A Quantitative Analysis on Labor-saving Effect of Informatization

Abstract

While the world economy is becoming increasingly more borderless, the firms are exposed to the fierce global competition. In order for the firms to survive in this environment, the efficient use of information systems is critical and indispensable. However, the quantitative evaluation of its effect is very difficult, which, in turn, makes the executives' decision on informatization-related investment even harder.

In this paper, the quantitative analysis of informatization is carried out for each industry, with focus on its labor-saving effect. The capital stock associated with information systems is defined as informatization stock, and its slack is detected by DEA (Data Envelopment Analysis). Using this slack as indicator for inefficiency of information systems, its relationship to the marginal rate of substitution for labor input is analyzed. The result shows that the slack can be seen when the increase of informatization stock exceeds the marginal rate of substitution and/or the labor input is not reduced in proportion to the increase of informatization stock.