Four essays on technology adoption and returns to skill in the US

Moohoun Song

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: We investigate two plausible factors that may have affected changes in wage inequality: returns to higher education and returns to new technologies. The first two chapters examine the role of mathematics and verbal ability in estimating returns to advanced degrees. When average abilities within the major are treated as missing variables, we found that OLS estimates of returns to graduate education are underestimated. When average ability in the major is treated as part of an endogenous decision regarding whether to attend post-graduate degree programs, we find that students in majors with higher average mathematics skills are less likely to progress beyond the bachelor's degree while the opposite happens with average verbal skills.;The next two chapters examine the decision of whether to adopt Internet and computer technologies and the returns to adoption. We first identify demand-side and supply-side factors that affect technology adoption in urban and rural areas. Local access to high speed Internet plays an important role in the technology adoption decision. It increases the probability of using computers and the Internet for work from home and also increases the likelihood of using the Internet at work. That factor alone explains about half of the gap in Internet adoption at home or at work between urban and rural workers. Together, the demand and supply-side factors identified in the analysis completely explain the differences in technology adoption between urban and rural areas.;Using the previous model to identify the endogenous probability of adopting various information technologies, we estimate returns to adoption in the context of an earnings function. When treated as exogenous, adoption has an implausibly large positive and significant effect on earnings. When the endogeneity of the choice to adopt is controlled, the estimated returns to adoption shrink in both sign and significance. Thus, while adoption is strongly tied to the availability of high-speed Internet in the home county, the higher income of adopters is due to factors that raise both the probability of adoption and earnings and not to the adoption per se.

Date: 2005-01-01
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