Information Technology and the Labor Market

In the 1990s, the dialogue on information technology (IT) centered on dot.coms and e-commerce, and little focus was placed on the effect of IT on the labor market. Richard Freeman addresses this issue in The Labour Market in the New Information Economy, an NBER working paper released this month.

Freeman relates that employment in IT-producing industries has grown from 3.3 percent of total employment in 1992 to 4.3 percent in 2000. The earnings of these workers, he notes, have risen 1.65 times the earnings of workers throughout the economy in 1992 and 2.11 times the earnings of all workers in 2000. The use of computers and the Internet at work also has risen. In 1984, 25 percent of workers ages 18-65 used a computer at work, and in 2001 that percentage rose to 56 percent. Internet usage rose from 17 percent in 1997 to 41 percent in 2001.

The communication and information technologies have changed and will continue to transform the labor market in many significant ways. Freeman associates the effect of IT and the Internet to several relationships in the labor market. First, his analysis reports a primary link between computer use and hourly earnings for the early 2000s and discovers a similar positive connection between Internet use and hourly earnings. Unfortunately, computer use also correlates well with a 5-6 percent increase in the number of hours worked at the traditional workplace. Second, the author predicts that with the increased usage of the Internet as a job search and employee search instrument that better matches between company and prospective employee will occur. The changing use of the Internet by unions and how they operate is the third relationship. Unions can now reach out in different ways to workers outside of the traditional workplace environment and communicate with employers without media intervention among other things.

Freeman foresees that while IT and Internet induced changes in the labor market have been substantial, they will continue to grow in importance as computerization and Internet access increase over time. These increases will cause even more transactions in the labor market to occur over cyberspace and provide a medium for unions to address workplace problems. The labor market will indeed progress even further into cyberspace just as other economic markets have. The complete article can be found at: http://papers.nber.org/papers/W9254