Working Paper: NBER ID: w12521
Authors: 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 neo-classical models of endogenous technology adoption can be very useful for understanding where technological change arises and how it affects markets.
Keywords: Technology Adoption; Labor Market; Skill Bias; PC Adoption; Wages
JEL Codes: E13; J31; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Supply of skilled labor (J24) | Technology adoption (O33) |
| Technology adoption (O33) | Demand for skilled labor (J24) |
| Cities with abundant skilled labor (J24) | Aggressive adoption of PCs (L63) |
| Aggressive adoption of PCs (L63) | Increase in returns to skill (J24) |
| Technology prices decline (D49) | Conditions for profitable adoption increase (O49) |
| Skill-biased technology arrival (O33) | Increase in returns to skill in skill-abundant localities (J24) |
| Aggressive adoption of PCs (L63) | Increase in wages for skilled workers (J31) |
| Aggressive adoption of PCs (L63) | Decrease in wages for unskilled workers (F66) |