FRBSF Economic Letter
2004-19; July 23, 2004
The Computer Evolution
Since the introduction
of the IBM PC in 1981, desktop computers have become a standard
fixture in most workplaces. Through their
ubiquity and impact on how work is done, personal computers (PCs)
arguably have transformed the workplace. At the same time, the
use and impact of PCs varies across worker groups with different
educational and skill levels. As a result, an extensive body of
research suggests that the spread of computers, or perhaps increased
workplace emphasis on skills that are closely related to computer
use, has altered the distribution of wages as well. This process
has been marked not so much by abrupt change as by slow and steady
change—it is an "evolution" rather than a "revolution."
In
this Economic Letter, we use data from five special surveys, covering
the period 1984-2001, to examine two key aspects of the
computer evolution: the spread of PCs at work and the evolving
wage differentials between individuals who use them and those who
do not. Although the spread of computers has been relatively uniform
across labor force groups, the wage returns associated with computers
tilted sharply in favor of the highly educated at the end of our
sample frame. This finding appears consistent with the increase
in trend productivity growth that occurred around the same time.
Computers
and workers
By the middle to late 1980s, the rapid expansion of computer
power embodied in PCs, combined with software that enhanced the
overall
ease of PC use and application to common business tasks, suggested
to researchers and casual observers alike that computers were playing
an increasingly important role in the determination of worker productivity
and wages. In the first systematic analysis of the impact of computer
use on wages, Krueger (1993) used data for the years 1984 and 1989
to estimate standard wage regressions that included controls for
computer use at work. As such, his estimates reflect wage differences
between workers who use and do not use computers, adjusted for
other observable differences across such workers that are systematically
related to wages as well (age, educational attainment, sex, etc.).
His results suggested that workers who used computers earned about
10%-20% more than workers who did not. Moreover, Krueger found
that differences between highly educated and less educated workers
in the incidence of and returns to computer use could account for
40%-50% of the increased return to education during the 1980s.
Krueger's analysis tied in well with earlier work regarding the
contribution of technological change to increased dispersion in
the U.S. wage distribution. Since then, wage gaps have widened
even further, intensifying the research focus on how equipment
like computers can alter the wage distribution by altering the
demand for workers with the skills to use such equipment effectively.
In a notable recent piece, Autor, Levy, and Murnane (2003) argue
that increased computer use can explain most of the increase in
nonroutine job tasks, hence the advanced skill content of jobs,
during the 1970s, 1980s, and 1990s, and as such can explain most
of the increased relative demand for college-educated workers.
Although Autor et al. do not directly address the question of computer
effects on earnings, their results indirectly suggest that rising
computer use also explains a substantial portion of the rising
wage gaps between highly educated and less educated workers over
these three decades.
PC diffusion and wage effects
Given these existing findings about
computer use, skill demand, and wages, an updated assessment of
the returns to computer use
is in order. To do so, we use the School Enrollment and the Computer
and Internet Use Supplements to the federal government's Current
Population Survey (CPS). The CPS covers about 60,000 households
each month; the resulting sample of individuals serves as a primary
source of information on U.S. employment, unemployment, and income
patterns. The supplements we use were conducted in 1984, 1989,
1993, 1997, and 2001 (Krueger's work relied on the first two of
these). In these surveys, the respondents were asked about computer
use at home, work, and school. Although the exact content of the
supplements changed over time (for example, Internet use was first
addressed in 1997), the question about computer use at work has
been essentially unaltered. We rely on samples of about 60,000
employed individuals in each survey to calculate rates of computer
use at work; of these, information on wages and related variables
is provided for a bit under one-fourth of the sample (about 12,
000-14,000 individuals). We restrict the analysis to individuals
age 18 to 65.
 Figure 1 shows the time series of computer use rates for college
graduates, nongraduates, and the combined population. Although
the level of computer use is significantly higher for workers with
a bachelor's degree (82.3% in 2001) than for those without it (42.7%),
the diffusion over time has been relatively uniform across these
groups. Additional tabulations show a similar pattern of diffusion
when the sample is broken down into narrower educational groups
or by additional characteristics such as gender, race, age, geography,
and occupation. In percentage terms, we find the sharpest increase
in computer use at work for groups with low initial use, including
older workers, part-time workers, blue-collar workers, and workers
without a high school degree. Moreover, the diffusion of computer
use at work slowed after 1993. These patterns are consistent with
common models of technology diffusion, in which individuals and
firms with the most to gain adopt the new technology first and
the rate of diffusion slows as the group that has not yet adopted
it shrinks.
To estimate the effect of computer use on wages, we
use a regression model similar to Krueger's (1993). The model controls
for observable
characteristics that are systematically related to wages, including
age, education, race, sex, marital status, veteran status, union
status, part-time status, and geographic location (region and urban/rural
residence), allowing us to isolate the effect of computer use on
wages independent of the influence of these other characteristics.
Given the potentially important interaction between computer use
and education level, we also allow for separate estimates of the
return to computer use for individuals who have attained at least
a college degree versus those who have not. After applying an appropriate
mathematical transformation based on the logarithmic regression
function, we obtain the estimated percentage effect of computer
use on wages.
 Figure 2 plots how the estimated return to computer
use at work has changed over time. For the full sample of workers,
the return
to computer use reached a peak in 1993, with a 24.2% wage advantage
over otherwise similar workers. The estimated return to computer
use for the full sample declined to 19.2% in 2001. However, the
return for individuals with a college or graduate degree increased
dramatically during the last period, reaching 31.4% in 2001. This
sharp change is surprising, as it conflicts with the general expectation,
based on economic reasoning, that the return to scarce skills (those
needed for computer use) should decline as that skill becomes less
scarce. As shown in Figure 1, only about one in five college-educated
workers did not use computers at work in 2001, which suggests that
the skills needed to use computers are far from scarce among the
highly educated.
Although the spread of computer skills suggests
that the wage returns to computer use should decline, this argument
ignores the possibility
that production technology is changing rapidly and in ways that
support increased rewards for workers with the skills needed for
effective use of critical technologies such as computers. Available
evidence suggests that rapid expansion of information technology
capital (mainly computers and software) in the workplace accounts
for a substantial portion of the increased growth in labor productivity
during the period 1996-2001 (see for example Oliner and Sichel
2003). While computers make some tasks easier and reduce required
skill levels, many advances in computer technology have enabled
increasingly sophisticated applications that require complex analytical
and evaluative skills. A leading reason to attend college is to
acquire such skills. It appears that these skills commanded an
increasing premium as workplace computer use intensified between
1997 and 2001, enabling college-educated workers to capture the
largest benefits from the spread of computers in the workplace
during this period.
Implications
Our findings confirm that workers who use computers
earn more than otherwise similar workers who do not. We also find
that this effect
has been especially large for highly educated workers in recent
years. Some researchers, however, have questioned whether the computer
effect on wages is fundamentally meaningful in an economic sense.
For example, DiNardo and Pischke (1997) have shown that workers
who use simple office tools like pencils earn a wage premium similar
to that estimated for computer users. This suggests the possibility
that the estimated effect of computer use on wages reflects unobserved
aspects of skilled workers and their jobs, such that these workers
would earn higher wages even if they did not use computers. In
other words, DiNardo and Pischke argue that computer use does not
have an independent "causal" impact on wages but instead
serves as a mediating or auxiliary factor, reflecting related skills
that are more fundamental than the direct ability to use a computer.
Nevertheless,
an abundance of evidence regarding close relationships among the
use of advanced technology and the demand for and wages
of skilled workers suggests an important causal role for computers
and the skills needed to use them. In that regard, an emphasis
on "causal" impacts may be misplaced. For many jobs,
effective performance requires computer use, which suggests a close
relationship between computer use and critical job skills. In technical
parlance, the ability to use a computer probably is not a "sufficient" condition
for earning high wages, but it is increasingly a "necessary" condition.
Overall,
we interpret the evidence as suggesting that direct computer
skills or skills that closely relate to computer use command a
substantial premium in the labor market, especially in conjunction
with a college degree. It remains to be seen whether the recent
increase in returns to computer use for highly educated individuals
will continue. However, the trend over the past few years suggests
that U.S. productivity growth remains on (or even above) the
accelerated growth path that was established during the late 1990s.
Going forward,
it is likely that these productivity gains will be largely reflected
in wage gains for highly educated individuals who use computers,
much as was the increase in the relative return to computer use
for these individuals during the period 1997-2001.
Rob Valletta
Research Advisor
Geoffrey MacDonald
Research Associate
References
Autor, David H., Frank Levy, and Richard J. Murnane. 2003. "The
Skill Content of Recent Technological Change: An Empirical Exploration." Quarterly
Journal of Economics 118(4) (November), pp. 1279-1333.
DiNardo, John, and Jörn-Steffen Pischke. 1997. "The
Return to Computer Use Revisited: Have Pencils Changed the Wage
Structure
Too?" Quarterly Journal of Economics 112(1) (February), pp.
291-303.
Krueger, Alan. 1993. "How Computers Have Changed the
Wage Structure: Evidence from Microdata, 1984-1989." Quarterly
Journal of Economics 108(1) (February), pp. 33-60.
Oliner, Stephen
D., and Daniel E. Sichel. 2003. "Information
Technology and Productivity: Where Are We Now and Where Are We
Going?" Journal of Policy Modeling 25(5) (July), pp. 477-503.
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