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Wage and Productivity Dispersion in U.S. Manufacturing: The Role of Computer Investment

  • Timothy Dunne
  • Lucia Foster
  • John Haltiwanger
  • Kenneth Troske

By exploiting establishment-level data for U.S. manufacturing, this paper sheds new light on the source of the changes in the structure of production, wages, and employment that have occurred over the last several decades. Based on recent theoretical work by Caselli (1999) and Kremer and Maskin (1996), we focus on empirically investigating the following two hypotheses. The first hypothesis is that the channel through which skill biased technical change works through the economy is via changes in the dispersion in wages and productivity across establishments. The second is that the increased dispersion in wages and productivity across establishments is linked to differential rates of technological adoption across establishments. We find empirical support for these hypotheses. Our main findings are that (1) the between plant component of wage dispersion is an important and growing part of total wage dispersion, (2) much of the between plant increase in dispersion is within industries, (3) the between plant measures of wage and productivity dispersion have indreased substantially over the last few decades, (4) industries with large changes in between plant wage dispersion also exhibit large changes n between plant productivity dispersion, (5) a substantial fraction of the rising dispersion in wages and productivity is accounted for by increasing wage and productivity differentials across high and low computer investment per worker plants and high and low capital intensity plants, and (6) Changes in dispersion accounted for by such observable characteristics yield predicted industry level changes in wage and productivity dispersion that are highly correlated.

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Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 00-01.

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Date of creation: Mar 2000
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Handle: RePEc:cen:wpaper:00-01
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  1. Michael Kremer & Eric Maskin, 1996. "Wage Inequality and Segregation by Skill," NBER Working Papers 5718, National Bureau of Economic Research, Inc.
  2. Bresnahan, Timothy F, 1999. "Computerisation and Wage Dispersion: An Analytical Reinterpretation," Economic Journal, Royal Economic Society, vol. 109(456), pages F390-415, June.
  3. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
  4. Eli Berman & John Bound & Zvi Griliches, 1993. "Changes in the Demand for Skilled Labor within U.S. Manufacturing Industries: Evidence from the Annual Survey of Manufacturing," NBER Working Papers 4255, National Bureau of Economic Research, Inc.
  5. Daron Acemoglu, 1999. "Changes in Unemployment and Wage Inequality: An Alternative Theory and Some Evidence," American Economic Review, American Economic Association, vol. 89(5), pages 1259-1278, December.
  6. Timothy Dunne & John Haltiwanger & Lucia Foster, 2000. "Wage and Productivity Dispersion in U.S. Manufacturing: The Role of Computer Investment," NBER Working Papers 7465, National Bureau of Economic Research, Inc.
  7. Lucia Foster & John Haltiwanger & C.J. Krizan, 1998. "Aggregate Productivity Growth: Lessons from Microeconomic Evidence," NBER Working Papers 6803, National Bureau of Economic Research, Inc.
  8. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
  9. Martin N. Baily & Eric J. Bartelsman & John Haltiwanger, 1996. "Labor productivity: structural change and cyclical dynamics," Finance and Economics Discussion Series 96-10, Board of Governors of the Federal Reserve System (U.S.).
  10. Timothy F. Bresnahan & Erik Brynjolfsson & Lorin M. Hitt, 1999. "Information Technology, Workplace Organization and the Demand for Skilled Labor: Firm-Level Evidence," NBER Working Papers 7136, National Bureau of Economic Research, Inc.
  11. Timothy Dunne & Kenneth R Troske & John Haltiwanger, 1996. "Technology and Jobs: Secular Changes and Cyclical Dynamics," Working Papers 96-7, Center for Economic Studies, U.S. Census Bureau.
  12. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-62, June.
  13. Donald Siegel, 1997. "The Impact Of Computers On Manufacturing Productivity Growth: A Multiple-Indicators, Multiple-Causes Approach," The Review of Economics and Statistics, MIT Press, vol. 79(1), pages 68-78, February.
  14. Erik Brynjolfsson & Lorin M. Hitt, 2003. "Computing Productivity: Firm-Level Evidence," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 793-808, November.
  15. Steven J. DAVIS & John HALTIWANGER, 1996. "Employer Size and the Wage Structure in U.S. Manufacturing," Annales d'Economie et de Statistique, ENSAE, issue 41-42, pages 323-367.
  16. Berndt, Ernst R. & Morrison, Catherine J., 1992. "High-tech capital formation and economic performance in U.S. manufacturing industries : an exploratory analysis," Working papers 3419-92., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  17. Doms, Mark & Dunne, Timothy & Troske, Kenneth R, 1997. "Workers, Wages, and Technology," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 253-90, February.
  18. Nathalie Greenan & Jacques Mairesse, 1996. "Computers and Productivity in France: Some Evidence," NBER Working Papers 5836, National Bureau of Economic Research, Inc.
  19. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
  20. Frank R. Lichtenberg, 1993. "The Output Contributions of Computer Equipment and Personnel: A Firm- Level Analysis," NBER Working Papers 4540, National Bureau of Economic Research, Inc.
  21. Michael Kremer & Eric Maskin, 1996. "Wage Inequality and Segregation," Harvard Institute of Economic Research Working Papers 1777, Harvard - Institute of Economic Research.
  22. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November.
  23. Erik Brynjolfsson & Shinkyu Yang, 1997. "Information Technology and Productivity: A Review of the Literature," Working Paper Series 202, MIT Center for Coordination Science.
  24. Kevin J. Stiroh, 2001. "Information technology and the U.S. productivity revival: what do the industry data say?," Staff Reports 115, Federal Reserve Bank of New York.
  25. David Autor & Lawrence Katz & Alan Krueger, 1997. "Computing Inequality: Have Computers Changed the Labor Market?," Working Papers 756, Princeton University, Department of Economics, Industrial Relations Section..
  26. Francesco Caselli, 1999. "Technological Revolutions," American Economic Review, American Economic Association, vol. 89(1), pages 78-102, March.
  27. Catherine J. Morrison, 2000. "Assessing The Productivity Of Information Technology Equipment In U.S. Manufacturing Industries," The Review of Economics and Statistics, MIT Press, vol. 79(3), pages 471-481, August.
  28. Eric J. Bartelsman & Wayne Gray, 1996. "The NBER Manufacturing Productivity Database," NBER Technical Working Papers 0205, National Bureau of Economic Research, Inc.
  29. Goldin, Claudia & Margo, Robert A, 1992. "The Great Compression: The Wage Structure in the United States at Mid-century," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 1-34, February.
  30. Stephen D. Oliner & Daniel E. Sichel, 1994. "Computers and Output Growth Revisited: How Big Is the Puzzle?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(2), pages 273-334.
  31. Douglas W Dwyer, 1995. "Whittling Away At Productivity Dispersion," Working Papers 95-5, Center for Economic Studies, U.S. Census Bureau.
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