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

Author

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  • Paul Beaudry
  • Mark Doms
  • Ethan Lewis

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.

Suggested Citation

  • Paul Beaudry & Mark Doms & Ethan Lewis, 2006. "Endogenous skill bias in technology adoption: city-level evidence from the IT revolution," Working Paper Series 2006-24, Federal Reserve Bank of San Francisco.
  • Handle: RePEc:fip:fedfwp:2006-24
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    References listed on IDEAS

    as
    1. Mark Doms, 2005. "The diffusion of personal computers across the United States," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue dec23.
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    More about this item

    Keywords

    Technological innovations ; Labor market;

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • 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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