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


  • Lex Borghans
  • Bas ter Weel


We review the empirical literature about the implications of the computerization of the labor market to see whether it can explain observed computer adoption patterns and (long-term) changes in the wage structure. Evidence from empirical micro-economic studies turns out to be inconsistent with macro-economic studies that are based on Constant Elasticity of Substitution (CES) production functions. We propose a micro-economic foundation for the CES production function that allows for changes in the underlying structure. We adapt the macro-economic model by incorporating computer skills, complementary skills, and fixed costs for computer technology usage suggested by the micro-economics literature. It turns out that fixed costs for computer technology usage explain different patterns of computer adoption and diffusion between several types of workers and countries; they also provide very plausible patterns of the timing of wage inequality and technological developments over time.