Computerization and Wage Dispersion: An Analytical Reinterpretation

Abstract

The United States has recently seen a dramatic rise in income inequality, all the more surprising because the long-term trend had been toward equality. This paper examines one of the leading explanations: computerization in the workplace. I offer a theory of computers? impact on white-collar work which goes far toward explaining the timing, form, and locus of recent labor market changes. The theory looks at the bureaucratic and organizational applications of computers that have been first, largest, and most influential. They have two effects on firms? demand for labor at different skill levels. Computer decisionmaking has been a substitute for human decisionmaking over a limited range of tasks. Low- and middle-skill white collar work has been the most affected. Substitution of computers for high-skill workers has been quite limited. The rising demand for more highly skilled workers is driven by broad changes in the economics of the firm with many causes including computerization. While this theory is in agreement with many recent analyses pointing to computers, the specifics are quite different. Complementarities between computer use and individual workers? skills are not an important component of change. This very different view of the mechanisms of skill biased technical change has new implications for understanding labor markets over the last 25 years, for the policy debate, and for predicting the future evolution of labor demand.