Technological Change, Computerization, and the Wage Structure

1 Overall wage inequality and educational wage differentials have expanded substantially in the United States over the past two decades. This widening of the wage structure has coincided with the rapid computerization of the work place. Thus, it is not surprising that many labor market analysts have tried to draw a causal connection between rising earnings inequality and increases in growth rate of the relative demand for more-skilled workers driven by technological and organizational changes associated with the computer revolution (e. inferences follow a venerable and fruitful tradition extending back to Paul Douglas (1926) and Jan Tinbergen (1975) of viewing the evolution of the wage structure (at least partially) as depending on a race between technological development and educational advance. This hypothesis implies that improvements in access to post-secondary schooling and appropriate skills training may be necessary to allow the productivity benefits of the new technologies associated with the digital economy to be more widely shared. Two key pieces of evidence are often cited as being strongly suggestive of an integral role for skill-biased technological change in the recent rise in U.S. wage inequality. 1 The first is that the relative employment of more-educated workers and non-production workers has increased rapidly within detailed industries and within establishments in the United States during the 1980s and 1990s, despite the sharp rise in the relative wages of these groups within-industry demand shifts favoring the more skilled. Similar patterns of within-industry increases in the proportion of " skilled " workers are apparent in most other advanced nations (Berman, Bound, 1 Skill-biased technological change refers to any introduction of a new technology, change in production methods, or change in the organization of work that increases the demand for more-skilled labor (e.g., college graduates) relative to less-skilled labor (e.g., non-college workers) at fixed relative wages. 2 and Machin 1998; Machin and Van Reenen 1998). Skill-biased technological change (broadly interpreted to be associated with both new production technologies and organizational innovations) is a natural possibility for such unexplained within-sector growth in the demand for skill. 2 The second more direct evidence from both econometric and case-study research is that the relative utilization of more-skilled workers is strongly positively correlated with capital intensity and Levy and Murnane 1996). These findings imply that physical capital and new technologies are relative complements with more-skilled workers. Such evidence is certainly consistent with the view that the spread of computer technologies …