How information technology affects wages: Evidence using Internet usage as a proxy for IT skills

Abstract

Many research studies have found a positive link between information technology (IT) in the work place and wages. Using data from the December, 1998 Current Population Survey, we examine the impact of IT, as proxied by on-the-job Internet usage, on wages. After controlling for selectivity bias, we estimate an average wage gain of 13.5 percent for on-the-job Internet usage. This wage advantage is consistent with estimates from studies based on data collected earlier in the 1990s examining the impact of computers in the workplace. We also tested for differences across industries in the manufacturing sector. We conclude that industries marked by less intensive use of technology offered significantly higher wage premiums than industries characterized by more intensive use of technology. This finding undermines the argument that higher wages go to those working in high-tech firms, not to those with high IT skills. We also find evidence that high-tech firms sort workers by skill level, which is also consistent with earlier studies.