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

  • Paul Beaudry
  • Mark Doms
  • Ethan Lewis

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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  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.
  10. David Card & Ethan Lewis, 2005. "The Diffusion of Mexican Immigrants During the 1990s: Explanations and Impacts," CReAM Discussion Paper Series 0504, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London.
  11. 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.
  12. Rodolfo E. Manuelli & Ananth Seshadri, 2013. "Frictionless technology diffusion: the case of tractors," Working Papers 2013-022, Federal Reserve Bank of St. Louis.
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  15. Ethan Lewis, 2005. "Immigration, skill mix, and the choice of technique," Working Papers 05-8, Federal Reserve Bank of Philadelphia.
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  18. 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.
  19. David Card & John E. DiNardo, 2002. "Skill Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," NBER Working Papers 8769, National Bureau of Economic Research, Inc.
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  24. 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.
  25. Mark Doms, 2005. "The diffusion of personal computers across the United States," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue dec23.
  26. Alan B. Krueger, 1991. "How Computers Have Changed the Wage Structure: Evidence From Microdata, 1984-1989," NBER Working Papers 3858, National Bureau of Economic Research, Inc.
  27. 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.
  28. Paul Beaudry & David A. Green, 2005. "Changes in U.S. Wages, 19762000: Ongoing Skill Bias or Major Technological Change?," Journal of Labor Economics, University of Chicago Press, vol. 23(3), pages 609-648, July.
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