The distinct effects of Information Technology and Communication Technology on firm organization

Nicholas Bloom (), Luis Garicano (), Raffaella Sadun () and John van Reenen ()

No 14975, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: F23 O31 O32 O33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-knm
Date: 2009-05
Note: IO LS PR
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Working Paper: The Distinct Effects of Information Technology and Communication Technology on Firm Organization (2009)
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