Do clouds have a silicon lining for firms? Contract hiring and computer capital: evidence from rainfall shocks

How does technology adoption in developing countries influence firms' use of flexible, low‐protection labour when local demand fluctuates? This paper studies how computer capital intensity moderates firms' use of contract workers in response to exogenous, weather‐driven demand shocks. Using panel data on Indian manufacturing firms from 1999–2000 to 2009–2010, we combine firm‐level information on computer capital stocks with district‐level rainfall shocks that shift agricultural incomes and, in turn, local demand for manufacturing goods. We find that in response to positive transitory demand shocks, firms with above‐average computer capital shares hire 2.32 fewer contract workers than those with below‐average shares, representing an 11.33% difference relative to mean contract employment. This effect primarily impacts workers in manufacturing activities rather than peripheral services. Our results remain robust across various alternative measures of computer capital intensity, including exogenous measures derived from the industry‐level US computer capital expenditure distribution, as well as the inclusion of additional controls for firm‐specific time‐varying characteristics. The results show that computer‐capital‐intensive firms adjust contract employment less in response to transitory demand shocks, highlighting how early‐stage computerization, flexible labour arrangements, and weather‐induced demand fluctuations jointly shape labour demand in developing economies.