Solving the Paradoxes of the Information Technology Revolution: Productivity and Inequality

Solving the Paradoxes of the Information Technology Revolution: Productivity and Inequality

Francesco D. Sandulli (Universidad Complutense de Madrid, Spain)
DOI: 10.4018/978-1-60566-699-0.ch023
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The research on the digital divide usually analyzes the differences between those who have access to information technology and those who have not. This approach typically considers information technology a homogeneous set of technologies. In this chapter, we will break this assumption establishing different subsets of information technologies according to their impact on the task productivity and the firm’s demand for high skilled labour. This new focus reveals that depending on the information technology used by the firm to perform a given task, the demand for high skilled and low skilled workers may vary and consequently their wages and income, producing in some cases a new and till now unobserved digital divide
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The Industrial Revolution in the eighteenth century changed the shape of the world. The adoption of new inventions and methods of production triggered a spectacular climb of productivity and wealth that lasted for years. Nowadays, nobody denies the benefits and the economic growth due to the new economic framework created by the Industrial Revolution. However, the Industrial Revolution shown also a dark side in terms of pollution, unregulated urbanization, physical and moral degradation of the population, as well as the increase in power and wealth inequality. Towards the end of the twentieth century the invention of the microprocessor by Ted Hoff, Intel engineer, and some other engineers from the Japanese firm Busicom may have started a new Revolution: The Information Technology Revolution. As well as the Industrial Revolution, the redesign of business processes and production methods as well as new inventions, such as the mobile telephone or the Internet, characterized the current Information Technology Revolution. Moreover, the Information Technology Revolution that is still in process may have some impact on both the productivity and the wealth distribution.

Access to Information Technology varies widely. A consistent amount of research (see for instance some cross-country analyses in Hiroshi, 2005; Demoussiss and Giannokopulos, 2006; Greenstein and Prince, 2006; Chinn and Fairlie, 2007) shown that income, gender, ethnicity or education among other factors explain this variability in the access and use of Information Technology. These factors may act as barriers to access to the technology and create a divide between the social groups with access to the new technologies and those groups without it. This phenomenon has been defined as Digital Divide and has received a great deal of attention in the academic and political world. The fact that Digital Divide may increase the income gap between workers with computer literacy and workers without it explains this interest. Lack of access to Information Technology may prevent disadvantaged individuals from overcoming the over-riding cause of their disadvantage, which is low income. The persistence of a Digital Divide is not only an impediment to the development of individuals and regions, but it may also worsen the gap between low-income and high-income communities. For instance, in words of the International Labour Organization (2001) “the employment aspirations and productivity potential of millions of workers won’t be realized if the Digital Divide problem is not solved”. In this chapter we will not revise the causes of the Digital Divide but its effects on income distribution. We will address the relationship between the Digital Divide and the Income Divide between high and low skilled workers. We will study how the use of Information Technology in productive tasks may shift the demand for high and low skilled workers and consequently may widen or shrink the income gap between these two groups of workers.

Key Terms in this Chapter

Wage Dispersion: Wage Dispersion measures pay differentials among workers.fu

Productivity Paradox: The productivity paradox reflects the lack of irrefutable and clear evidence of the contribution of Information Technology to the increase of productivity in the last 30 years.

Information Technology: Broad set of technologies used to manage, transfer, process and store information.

Labour inputs: Is something that every worker provides to the production system. The two most important labour inputs are knowledge and manual work.

Productivity: Measures the changes in output per unit of input. To better understand the complementarities between Information Technology capital and other inputs, the use of multifactor or total productivity is widely used in the study of the relationship between productivity and changes in the Information Technology capital.

Skill-biased Technological Change: This is the technological change that benefits only those workers with higher skills in detriment of workers with lower skills who lose their jobs or see their wages diminished.

Inequality Paradox: The inequality paradox reflects the fact that there is some, still unclear, evidence that Information Technology may be related to the widening wage and income gap in developed societies.

Computer Literacy: Ability to use computers and related information technologies.

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