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Endogenous Skill Bias in Technology Adoption: City-Level Evidence from the IT Revolution

Paul Beaudry (), Mark Doms () and Ethan Lewis ()

No 12521, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper focuses on the bi-directional interaction between technology adoption and labor market conditions. We examine cross-city differences in PC-adoption, relative wages, and changes in relative wages over the period 1980-2000 to evaluate whether the patterns conform to the predictions of a neoclassical model of endogenous technology adoption. Our approach melds the literature on the effect of the relative supply of skilled labor on technology adoption to the often distinct literature on how technological change influences the relative demand for skilled labor. Our results support the idea that differences in technology use across cities and its effects on wages reflect an equilibrium response to local factor supply conditions. The model and data suggest that cities initially endowed with relatively abundant and cheap skilled labor adopted PCs more aggressively than cities with relatively expensive skilled labor, causing returns to skill to increase most in cities that adopted PCs most intensively. Our findings indicate that neo-classical models of endogenous technology adoption can be very useful for understanding where technological change arises and how it affects markets.

JEL-codes: E13 J31 O33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-ino, nep-lab, nep-mac and nep-ure
Date: 2006-09
Note: EFG LS PR
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28) Track citations by RSS feed

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