Skills-Biased Technological Change and Economic Outcomes

A depressing paper on labor market outcomes, via Marginal Revolution:

Does adoption of broadband internet in firms enhance labor productivity and increase wages? And is this technological change skill biased or factor neutral? We exploit rich Norwegian data to answer these questions. A public program with limited funding rolled out broadband access points, and provides plausibly exogenous variation in the availability and adoption of broadband internet in firms. Our results suggest that broadband internet improves (worsens) the labor outcomes and productivity of skilled (unskilled) workers. We explore several possible explanations for the skill complementarity of broadband internet. We find suggestive evidence that broadband adoption in firms complements skilled workers in executing nonroutine abstract tasks, and substitutes for unskilled workers in performing routine tasks. Taken together, our findings have important implications for the ongoing policy debate over government investment in broadband infrastructure to encourage productivity and wage growth.

This is another small piece of evidence in favor of “skills-biased technological change”.  In SBTC, technology changes in such a way that it is not neutral with regards to outcomes – for example, it might make unskilled workers or highly-skilled workers more valuable relative to each other.  One example is what is called the “superstar effect” – as communications improve, very gifted artists can sell their work to larger audiences and make much more money, and so the distribution of incomes in the art industry becomes much more unequal.

One interesting aspect of SBTC is that winners see the resulting distribution as natural.  They work hard, and are skilled, and make their income because of that.  It is hard for them (or anyone) to imagine a counterfactual world without SBTC, one where their skills would be less lucrative.  And so to the wealthy in a world with a lot of SBTC, they have earned every dollar of income and the resulting distribution of income represents just deserts.  To the losers, it appears as though technological change is directing income unjustly towards those winners.  And they are both right.

The politics of such a world are depressing to consider.  Though to be more optimistic, a world of SBTC may be the world in which we live today.

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