Does digital transformation crowd out the employment of lower skill labor?

Abstract This paper investigates the effect of digital transformation on the employment of low‐skilled labor. Using a large sample of Chinese listed firms for the 2008–2021 period, we find that digital transformation reduces the employment of low‐skilled labor. This result is robust to a battery of sensitivity tests and is attenuated for firms located in regions with higher unemployment rates and for small enterprises. Mechanism tests show that digital transformation affects the employment of low‐skilled labor through the wage effect channel and the substitution effect channel. The paper deepens our understanding of the economic effect of digital transformation on the labor market.