Working Paper: NBER ID: w14975
Authors: Nicholas Bloom; Luis Garicano; Raffaella Sadun; John Van Reenen
Abstract: Empirical studies on information communication technologies (ICT) typically aggregate the "information" and "communication" components together. We show theoretically and empirically that these have very different effects on the empowerment of employees, and by extension on wage inequality. If managerial hierarchies are devices to acquire and transmit knowledge and information, technologies that reduce information costs enable agents to acquire more knowledge and 'empower' lower level agents. Conversely, technologies reducing communication costs substitute agent's knowledge for directions from their managers, and lead to centralization. Using an original dataset of firms in the US and seven European countries we study the impact of ICT on worker autonomy, plant manager autonomy and spans of control. Consistently with the theory we find that better information technologies (Enterprise Resource Planning for plant managers and CAD/CAM for production workers) are associated with more autonomy and a wider span of control. By contrast, communication technologies (like data networks) decrease autonomy for both workers and plant managers. Our findings are robust to using exogenous variation in cross-country telecommunication costs arising from differential regulatory regimes.
Keywords: Information Technology; Communication Technology; Firm Organization; Employee Empowerment; Wage Inequality
JEL Codes: F23; O31; O32; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Improvements in IT (L86) | Decentralization (H77) |
| Enhancements in CT (Y50) | Centralization (H77) |
| Better information technologies (ERP systems) (M15) | Increased autonomy of plant managers and workers (L23) |
| Decreased information acquisition costs (D83) | Increased autonomy of plant managers and workers (L23) |
| Lower communication costs (L96) | More centralized decision-making structures (L22) |
| Access to information (L86) | Greater flexibility in decision-making (D80) |