Learning and Wages in High-tech Labor Markets

Using a new data source on the reservation wages of IT workers, we argue that IT workers often accept lower pay in exchange for acquiring new technical skills on-the-job. This drives a wedge between workers’ pay and their perceived market value that is a) larger for IT workers than for other professionals, b) larger for midcareer IT workers, c) increasing in job tenure and d) larger for IT workers in high-tech regions. These effects are largest at employers that are investing in new technologies and for workers with the human capital that is most impacted by recent technological innovation, both of which are consistent with an explanation based on skill acquisition. These findings are also robust to a number of alternative explanations for why high-tech workers accept lower wages, including greater use of stock options, perks, and other non-wage compensation by high-tech employers, immigration-related mobility restrictions, and explanations based on labor market information asymmetries. The implications of this wedge for some notable features of the IT labor market— such as IT turnover rates and age-based sorting of IT workers across firms and IT industries—are discussed.