-zhang.png)
Information technologies such as artificial intelligence (AI), cloud computing and data management systems continue to automate many routine and laborious tasks.
But despite these technologies’ promise, their adoption has not been universal or immediate. Adoption requires substantial capital investment as well as organizational adjustments, such as a reshuffling of the current labour force.
Tax policy plays a big role in shaping firms’ resource allocation. That’s why Professor Rengong (Alex) Zhang has received a Social Sciences and Humanities Research Council Insight Development Grant for his project titled “How does tax affect information technology adoption? Evidence from unemployment insurance taxation.”
Looking at the U.S., Zhang aims to determine whether sites in high unemployment insurance tax states receive less IT investment and to identify the factors that moderate this relationship, such as site-headquarter proximity and financial constraints. He will also assess whether these sites experience lower productivity growth compared to other sites within the same firm that operate out of lower UI tax states.
For large firms operating across multiple locations, efficient prioritization of limited resources is crucial. Understanding what drives or hinders on-site IT adoption within firms is critical to maximize benefits and promote equitable productivity growth across operating regions.
This presents a dual challenge for technology adoption. Higher UI rates increase layoff costs, making employers more cautious about hiring. They may also be less willing to adopt new technologies that could displace workers and require workforce restructuring.
Unintended consequences of high UI rates
Professor Zhang will seek to determine how technology adoption varies within firms, while expanding the literature on the effects of UI taxation. His research aims to highlight the unintended consequences of high UI rates.
Policymakers can use these findings to design tax frameworks that balance economic security with innovation and productivity growth.
Furthermore, for businesses, Zhang’s research can offer practical strategies for prioritizing technology investments across multi-site operations, enabling managers to navigate tax-related constraints.
