Two Faces of Comprehensive Information Technology, Knowledge Acquisition, and Polarized Wage Structure

Abstract

Garicano (2000) and Garicano and Rossi-Hansberg (2006) distinguish comprehensive information technology advances between information technology advances and communication technology advances, both of which have qualitatively different characteristics. Based on this distinction, this paper shows that, first, decreasing knowledge acquisition costs, due to advances in information technology, raise wage differentials between problem solvers and production workers and within-group wage differentials. Second, cheaper communication costs, due to communication technology advances, increase wage inequality between problem solvers and production workers and within-group wage inequality for problem solvers, but decrease within-group wage inequality for production workers. These heterogeneous impacts of information and communication technology advances on between-group wage inequality and on within-group wage inequality would provide a rationale for a wage polarization pattern in the recent U.S. labor market in which there is an increasing wage inequality in the upper-tail of wage distribution and a decreasing wage inequality in the lower-tail of wage distribution.