Understanding the Technology of Computer Technology Diffusion: Explaining Computer Adoption Patterns and Implications for the Wage Structure

We review the empirical literature about the implications of the computerization ofthe labor market to see whether it can explain observed computer adoptionpatterns and (long-term) changes in the wage structure. Evidence from empiricalmicro studies turns out to be inconsistent with macro studies that are based onCES production functions. We propose a micro foundation for the CESproduction function that allows for changes in the underlying structure. We adaptthe macro model by incorporating computer skills, complementary skills and fixedcosts for computer technology usage suggested by the micro literature. It turns outthat fixed costs for computer technology usage explain different patterns ofcomputer adoption and diffusion between several types of workers and countries; italso provides very plausible patterns of the timing of wage inequality anddevelopments over time.