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The Diffusion of Computers and the Distribution of Wages

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Author Info
Borghans,Lex
Weel,Bas,ter (ROA rm)

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Abstract

This paper models the impact of the diffusion of computers on the wage structure, starting from the observation that computer use increases individual productivity, but also the supply of goods. This latter effect negatively affects workers producing similar goods. If the productivity gain is proportional, and the costs of a computer are equal for everyone, workers with high wages are the first to adopt, leading to within-group wage inequality. Distinguishing skilled and unskilled workers we show that between-group wage inequality falls when the first skilled workers adopt computers. When unskilled workers start to use computers, between group wage inequality increases strongly because of the increased supply of unskilled labor in terms of efficiency units. The maximum level of wage inequality depends mainly on parameters regarding the distribution of the productivity of workers within and between groups: A large initial level of wage inequality leads to a large short term relative increase in wage inequality. In the long run, when all workers have adopted computers, both within-group and between-group wage inequality fall to a level depending on differences in productivity gains from using computers. Empirically it is shown that the model is consistent with the pattern of wage inequality in the United States in the period 1963-2000. The current pattern is mainly determined by the short term determinants of wage inequality, making the long run implications difficult to identify and predict.Keywords: Wage Inequality; Wage Level and Structure; ComputerizationJEL Codes: J31, O30

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Paper provided by Maastricht : ROA, Research Centre for Education and the Labour Market in its series Research Memoranda with number 003.

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Date of creation: 2003
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Handle: RePEc:dgr:umaror:2003003

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Keywords: education; training and the labour market;

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hofer, Helmut & Riedel, Monika, 2003. "Computer Use and the Wage Structure in Austria," Economics Series 147, Institute for Advanced Studies. [Downloadable!]
  2. Lex Borghans & Bas ter Weel, 2009. "Understanding the Technology of Computer Technology Diffusion," CPB Discussion Papers 117, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  3. Sabrina Wulff Pabilonia & Cindy Zoghi, 2004. "Which Workers Gain from Computer Use?," Working Papers 373, U.S. Bureau of Labor Statistics. [Downloadable!]
  4. Borghans Lex & Weel Bas ter, 2008. "Understanding the Technology of Computer Technology Diffusion: Explaining Computer Adoption Patterns and Implications for the Wage Structure," Research Memoranda 009, Maastricht : ROA, Research Centre for Education and the Labour Market. [Downloadable!]
    Other versions:
  5. Borghans,Lex & Weel,Bas,ter, 2002. "Do Older Workers Have More Trouble Using a Computer Than Younger Workers?," Research Memoranda 003, Maastricht : ROA, Research Centre for Education and the Labour Market. [Downloadable!]
  6. Spitz, Alexandra & Bertschek, Irene, 2003. "IT, Organizational Change and Wages," ZEW Discussion Papers 03-69, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  7. David Autor & Frank Levy & Richard Murnane, 2003. "The skill content of recent technological change: an empirical exploration," Proceedings, Federal Reserve Bank of San Francisco, issue Nov. [Downloadable!]
    Other versions:
  8. Spitz, Alexandra, 2004. "Using Methods of Treatment Evaluation to Estimate the Wage Effect of IT Usage," ZEW Discussion Papers 04-67, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
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