ZEF Discussion Papers on Devlopment Policy 7




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ZEF Discussion Papers on Devlopment Policy 7
31
wages and computer use reflects unobserved worker-quality differences. Overall, the results are
consistent with the conclusion that firms with more highly skilled workers are more likely to
adopt new technologies. However, subsequent to adoption, these technologies do not have much
of an impact on wages.
Thus far, the focus has been on the question of how computer use influences wages.
While it is possible to use these estimates as a basis for drawing conclusions regarding wage
inequality, a more direct approach may hold greater appeal. For instance, Autor, Katz and
Krueger (1997) use US data covering 140 three-digit industries over the 1940-1995 period to
establish first that the increase in the relative demand for skilled workers is driven primarily by
skill-upgrading within industries, rather than by a “between-industry” shift in demand
38
.
Following that, they examine whether the within-industry increase in demand for skilled labor is
related to industry computer use. Specifically, they study whether the annualized change in the
college-educated workers’ wage bill in each industry (an indicator of within-industry skill
upgrading) is related to the changes in the fraction of workers in the industry who use a
computer.
39
They examine this relationship by dividing their sample into four periods (1960-70,
1970-80, 1980-90 and 1990-95). Their results indicate that between 1970 and 1995, there is a
strong relationship between the shift towards college-educated workers and computer adoption.
The results suggest that a substantial portion (around 50 percent) of the increase in the share of
the wage bill devoted to college-educated workers may be explained by the change in computer
use.
To examine whether their results are specific to computers or reflect broader patterns of
capital-skill complementarity, the authors combine their information on wage bills and computer
use with industry data on capital stocks. The estimates indicate that there is a strong positive
relationship between an industry’s computer capital at the start of each decade and the growth in
the share of that industry’s wage bill paid to college-educated employees. The impact of
computer capital is not substantially influenced when the change in the capital-labor ratio is
added to the regression. The finding that the initial stock of computer capital has an impact on
relative wages hints at a mechanism by which an increase in computer investments calls forth an
increase in the demand for skilled labor.
38
A between-industry increase in demand would imply that demand has shifted to those industries which employ
more highly skilled labor.
39
Note that the increase in the share of college-educated workers in the total wage bill depends on the increase in
wages, as well as on the increase in the employment of college-educated workers. Thus, this variable reflects the
effects of ICTs on wages and employment.



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ZEF Discussion Papers on Devlopment Policy 7

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