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Endogenous skill bias in technology adoption: city-level evidence from the IT revolution

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Author Info
Paul Beaudry
Mark Doms
Ethan Lewis

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Abstract

This paper focuses on the bi-directional interaction between technology adoption and labor market conditions. We examine cross-city differences in PC adoption, relative wages, and changes in relative wages over the period 1980-2000 to evaluate whether the patterns conform to the predictions of a neoclassical model of endogenous technology adoption. Our approach melds the literature on the effect of the relative supply of skilled labor on technology adoption to the often distinct literature on how technological change influences the relative demand for skilled labor. Our results support the idea that differences in technology use across cities and its effects on wages reflect an equilibrium response to local factor supply conditions. The model and data suggest that cities initially endowed with relatively abundant and cheap skilled labor adopted PCs more aggressively than cities with relatively expensive skilled labor, causing returns to skill to increase most in cities that adopted PCs most intensively. Our findings indicate that neoclassical models of endogenous technology adoption can be very useful for understanding where technological change arises and how it affects markets.

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Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2006-24.

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Date of creation: 2006
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Handle: RePEc:fip:fedfwp:2006-24

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Related research
Keywords: Technological innovations ; Labor market;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
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. Ethan Lewis, 2005. "Immigration, skill mix, and the choice of technique," Working Papers 05-8, Federal Reserve Bank of Philadelphia. [Downloadable!]
  2. Ethan Lewis, 2005. "Immigration, Skill Mix, and the Choice of Technique," Working Papers 05-04, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
  3. Mark Doms, 2005. "The diffusion of personal computers across the United States," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue Dec 23. [Downloadable!]
  4. David Card & Ethan G. Lewis, 2005. "The Diffusion of Mexican Immigrants During the 1990s: Explanations and Impacts," NBER Working Papers 11552, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Finis Welch, 2000. "Growth in Women's Relative Wages and in Inequality among Men: One Phenomenon or Two?," American Economic Review, American Economic Association, vol. 90(2), pages 444-449, May. [Downloadable!] (restricted)
  6. Francesco Caselli & Wilbur John Coleman, 2006. "The World Technology Frontier," American Economic Review, American Economic Association, vol. 96(3), pages 499-522, June. [Downloadable!]
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  7. Francesco Caselli, 1999. "Technological Revolutions," American Economic Review, American Economic Association, vol. 89(1), pages 78-102, March. [Downloadable!] (restricted)
  8. 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!]
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  9. Christian Dustmann & Ian Preston & Francesca Fabbri, 2004. "Racial Harassment, Ethnic Concentration and Economic Conditions," CReAM Discussion Paper Series 0405, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London. [Downloadable!]
  10. Rodolfo Manuelli & Ananth Seshadri, 2003. "Frictionless technology diffusion: the case of tractors," Proceedings, Federal Reserve Bank of San Francisco, issue Nov. [Downloadable!]
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  11. Thomas J. Kane & Cecilia Elena Rouse, 1999. "The Community College: Educating Students at the Margin between College and Work," Journal of Economic Perspectives, American Economic Association, vol. 13(1), pages 63-84, Winter. [Downloadable!] (restricted)
  12. Card, David, 1999. "The causal effect of education on earnings," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 30, pages 1801-1863 Elsevier. [Downloadable!] (restricted)
  13. Goldin, Claudia & Sokoloff, Kenneth, 1984. "The Relative Productivity Hypothesis of Industrialization: The American Case, 1820 to 1850," The Quarterly Journal of Economics, MIT Press, vol. 99(3), pages 461-87, August. [Downloadable!] (restricted)
  14. Jess Benhabib & Mark M. Spiegel, 2002. "Human capital and technology diffusion," Working Papers in Applied Economic Theory 2003-02, Federal Reserve Bank of San Francisco. [Downloadable!]
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  15. Krueger, Alan B, 1993. "How Computers Have Changed the Wage Structure: Evidence from Microdata, 1984-1989," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 33-60, February. [Downloadable!] (restricted)
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  16. Paul Beaudry & David A. Green, 2002. "Changes in U.S. Wages 1976-2000: Ongoing Skill Bias or Major Technological Change?," NBER Working Papers 8787, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  17. Susanto Basu & David N. Weil, 1998. "Appropriate Technology And Growth," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1025-1054, November. [Downloadable!] (restricted)
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  18. Paul Beaudry & David Green, 2000. "The Changing Structure of Wages in the US and Germany: What Explains the Differences?," NBER Working Papers 7697, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  19. David Card & John E. DiNardo, 2002. "Skill-Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 733-783, October. [Downloadable!]
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  20. Paul Beaudry & David Green, 1998. "What is Driving US and Canadian Wages: Exogenous Technical Change or Endogenous Choice of Technique?," NBER Working Papers 6853, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  21. Enrico Moretti, 2002. "Estimating the Social Return to Higher Education: Evidence From Longitudinal and Repeated Cross-Sectional Data," NBER Working Papers 9108, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  22. Acemoglu, Daron, 2002. "Directed Technical Change," Review of Economic Studies, Blackwell Publishing, vol. 69(4), pages 781-809, October.
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  23. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2006. "The Polarization of the U.S. Labor Market," NBER Working Papers 11986, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  24. David Card, 1993. "Using Geographic Variation in College Proximity to Estimate the Return to Schooling," NBER Working Papers 4483, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  25. Comin, D. & Hobijn, B., 2004. "Cross-country technology adoption: making the theories face the facts," Journal of Monetary Economics, Elsevier, vol. 51(1), pages 39-83, January. [Downloadable!] (restricted)
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  26. Ethan Lewis, 2003. "Local, open economies within the U.S.: how do industries respond to immigration?," Working Papers 04-1, Federal Reserve Bank of Philadelphia. [Downloadable!]
  27. Daron Acemoglu, 1998. "Why Do New Technologies Complement Skills? Directed Technical Change And Wage Inequality," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1055-1089, November. [Downloadable!] (restricted)
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  28. Atkinson, Anthony B & Stiglitz, Joseph E, 1969. "A New View of Technological Change," Economic Journal, Royal Economic Society, vol. 79(315), pages 573-78, September. [Downloadable!] (restricted)
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. Joseph Kaboski & Trevon D. Logan, 2007. "Factor Endowments and the Returns to Skill: New Evidence from the American Past," NBER Working Papers 13589, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Edward L. Glaeser & Matthew G. Resseger & Kristina Tobio, 2008. "Urban Inequality," NBER Working Papers 14419, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Stephen Nickell & Jumana Saleheen, 2008. "The impact of immigration on occupational wages: evidence from Britain," Working Papers 08-6, Federal Reserve Bank of Boston. [Downloadable!]
  4. Susanto Basu & John G. Fernald, 2009. "What do we know (and not know) about potential output?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 187-214. [Downloadable!]
    Other versions:
  5. Robert G. Valletta, 2006. "Computer use and the U.S. wage distribution, 1984-2003," Working Paper Series 2006-34, Federal Reserve Bank of San Francisco. [Downloadable!]
  6. Hashmi, Aamir Rafique, 2007. "Intangible Capital, Barriers to Technology Adoption and Cross-Country Income Differences," MPRA Paper 5729, University Library of Munich, Germany. [Downloadable!]
  7. Richard Dion & Robert Fay, 2008. "Understanding Productivity: A Review of Recent Technical Research," Discussion Papers 08-3, Bank of Canada. [Downloadable!]
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