Let’s Switch to the Cloud: Cloud Usage and Its Effect on Labor Productivity

Abstract

The advent of cloud computing promises to improve the way firms use IT solutions. Firms are expected to replace large and inflexible fixed-cost investments in IT with more targeted, variable spending on cloud solutions. This is also expected to increase firms' productivity by allowing them to quickly adapt their IT infrastructure to their specific needs. We assess this claim using firm-level data provided by the German statistical offices for the years 2014 and 2016, which allows us to observe who the cloud users are. Our analysis explicitly accounts for self-selection into cloud usage within an endogenous treatment regression framework. Municipal broadband availability is used as a plausible exogenous shifter for cloud usage. We show that cloud usage significantly improves labor productivity for large firms, particularly in manufacturing, but we find no effect for small firms.