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The diffusion of computers and the distribution of wages

Listed author(s):
  • Borghans, Lex
  • ter Weel, Bas

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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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 51 (2007)
Issue (Month): 3 (April)
Pages: 715-748

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Handle: RePEc:eee:eecrev:v:51:y:2007:i:3:p:715-748
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