The Distinct Effects of Information Technology and Communication Technology on Firm Organization

Empirical studies on information communication technologies (ICT) typically aggregate the“information” and “communication” components together. We show theoretically and empirically thatthese have very different effects on the empowerment of employees, and by extension on wageinequality. If managerial hierarchies are devices to acquire and transmit knowledge and information,technologies that reduce information costs enable agents to acquire more knowledge and ‘empower’lower level agents. Conversely, technologies reducing communication costs substitute agent’sknowledge for directions from their managers, and lead to centralization. Using an original dataset offirms in the US and seven European countries we study the impact of ICT on worker autonomy, plantmanager autonomy and spans of control. Consistently with the theory we find that better informationtechnologies (Enterprise Resource Planning for plant managers and CAD/CAM for productionworkers) are associated with more autonomy and a wider span of control. By contrast, communicationtechnologies (like data networks) decrease autonomy for both workers and plant managers. Ourfindings are robust to using exogenous variation in cross-country telecommunication costs arisingfrom differential regulatory regimes.[...]