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Session13 Breshnan .pdf

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Information Technology, Workplace Organization, and the
demand for Skilled Labor: Firm-Level Evidence
โ€“ Timothy F. Bresnahan, Erik Brynjolfsson, Lorin M. Hitt
The complementary theory is developed, investigating if the combination of 3 innovations:
Information Technology (IT), Work Reorganization (WO), and new products and services (S)
are complements favouring skilled workers.
There are significant shifts in labor demand from low and middle- wage occupations and skills
toward more skilled and educated workers requiring talent, training, autonomy...this effect is
attributable to Skill-Biased Technical Change (SBTC).
There is a correlation between IT use and skill at both, firm and industry level. IT affects labor
demand directly and indirectly through firm-level changes.
Decline In the price of IT increased the use of these 3 innovations increasing the relative
demand of skilled workers as well as the demand for IT:
Declines in ๐‘ƒ๐ผ๐‘‡ ๏ƒจ Increased use of complementary system {IT, WO, S} <--> Increase in ๐ฟ๐ผ๐‘‡ /๐ฟ๐‘†
Technologies impacts organizations changing the optimal structure of them in aspects such as
decentralization of decision authority, changes in certain tasks or adjustment cost for IT.
Managers agree in many reasons to invest in IT. First, improve quality of products and
customer services, flexible machinery structures in order to have varied output mix as well as
reducing costs.
When implementing IT in organizations there are some limitations, denominated limited
substitution and information overload. Thus, computer technology is most effective in
automated routine tasks and do not replace workersโ€™ task, but instead for subset of tasks. Due
to increase in data available firms cannot adopt their labor pool to it, work may be
restructured requiring adaptation and distribution of information-processing tasks.
Advances in technology change the way that human work is measured, controlled or reported
in consequence of complex tasks. These changes involve providing people with skills that
computers lack, Itโ€™s necessary greater levels of cognitive skills, flexibility, and autonomy than
Production Function:
log(๐‘†๐‘–๐‘ก โˆ’ ๐‘€๐ผ๐‘‡ ) = ๐‘“(๐ฟ๐ผ๐‘‡ , ๐พ๐ผ๐‘‡ , ๐‘„๐ถ๐ผ๐‘‡ ; ๐ถ๐‘œ๐‘›๐‘ก๐‘Ÿ๐‘œ๐‘™๐‘ )
Dependent variable is โ€œvalue addedโ€ determined by the interaction of the three potential
complements and Controls (related industry and time). Reflects the degree in which firms
adopt each of the complements. Firms with more college-educated workers tend to have
more IT compared to blue-collar ones.
We observe on the tables VI and VII that WO and HCapital are complements with IT being able
to predict a firm demand for IT, however WO and Skills are correlated as well but their
โ€œrelationโ€ decreases when WO is added, as a result Skills become less relevant which means
that WO explains more (๐‘… 2 increases) of human capital investment than Skill.
Furthermore, firms with high levels of IT and WO use high HKINVEST strategies needed to
teach workers how to use the technology acquired by the firm allowing the organization to
adjust its stock of human capital upward, taking into consideration new distribution and new
characteristics of certain tasks. Once those adjustments are overthrown, either by luck or
good judgement, can now use IT efficiently leading to high productivity.

As IT goes cheaper and powerful induces more complementary investments focusing more on
the cluster aspect.
They found evidence in complementarities among: IT, WO, S in favour of skilled workers. All
three are positively correlated and predict firm productivity.
In short, IT is a source of increased demand for skilled labor and rising wage inequality in the

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