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The diffusion of computers and the distribution of wages

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  • Borghans, Lex
  • ter Weel, Bas

Abstract

When workers adopt technology at the point where the costs equal the increased productivity, output per worker increases immediately, while the productivity benefits increase only gradually if the costs continue to fall. As a result, workers in computer-adopting labor market groups experience an immediate fall in wages due to increased supply. On the other hand, adopting workers experience wage increases with some delay. This model explains why increased computer use does not immediately lead to higher wage inequality. More specifically, the results of the model are shown to be consistent with the question why withingroup wage inequality among skilled workers as a result of computer technology adoption in the United States increased in the 1970s, while between-group wage inequality and withingroup wage inequality among the unskilled did not start to increase until the 1980s. The model also suggests that the slow diffusion of computer technology in Germany along with the absence of major changes in the wage structure in the 1980s is consistent with the more compressed German wage structure. Finally, the theoretical predictions seem to be of the right magnitude to explain the empirical quantities observed in the data.
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  • Borghans, Lex & ter Weel, Bas, 2007. "The diffusion of computers and the distribution of wages," European Economic Review, Elsevier, vol. 51(3), pages 715-748, April.
  • Handle: RePEc:eee:eecrev:v:51:y:2007:i:3:p:715-748
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    Cited by:

    1. Lex Borghans & Bas ter Weel, 2008. "Understanding the Technology of Computer Technology Diffusion: Explaining Computer Adoption Patterns and Implications for the Wage Structure," Journal of Income Distribution, Journal of Income Distribution, vol. 17(3-4), pages 37-70, September.
    2. Mareva Sabatier & Bérangère Legendre, 2017. "The puzzle of older workers’ employment: distance to retirement and health effects," International Journal of Manpower, Emerald Group Publishing, vol. 38(1), pages 45-61, April.
    3. David H. Autor & Frank Levy & Richard J. Murnane, 2003. "The Skill Content of Recent Technological Change: An Empirical Exploration," The Quarterly Journal of Economics, Oxford University Press, vol. 118(4), pages 1279-1333.
    4. Hornstein, Andreas & Krusell, Per & Violante, Giovanni L., 2005. "The Effects of Technical Change on Labor Market Inequalities," Handbook of Economic Growth,in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 20, pages 1275-1370 Elsevier.
    5. Cornelia NOVAC-UDUDEC & Cristina ENACHE & Corina SBUGHEA, 2011. "The IT Impact on the Productivity and the Organizational Performance of Firms in Romania. A model of Empirical Analysis," Risk in Contemporary Economy, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, pages 177-183.
    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.
    7. Borghans,Lex & Weel,Bas,ter, 2002. "Do Older Workers Have More Trouble Using a Computer Than Younger Workers?," ROA Research Memorandum 003, Maastricht University, Research Centre for Education and the Labour Market (ROA).
    8. Sabrina Wulff Pabilonia & Cindy Zoghi, 2004. "Which Workers Gain from Computer Use?," Working Papers 373, U.S. Bureau of Labor Statistics.
    9. Gould, Eric D., 2005. "Inequality and ability," Labour Economics, Elsevier, vol. 12(2), pages 169-189, April.
    10. 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.

    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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