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Diffusion and Technology-Education Complementarity

Mark Thoma tells us that we should go read the San Francisco Fed's Mark Doms:

Economist's View: Technological Diffusion : The San Francisco Fed's Mark Doms discusses his work with Ethan Lewis on the adoption of technology, in this case the use of personal computers. An interesting result is that higher average educational attainment for a region results in more intensive adoption of personal computers and faster growth in wages:

The Diffusion of Personal Computers across the U.S., FRBSF Economic Letter.... Doms and Lewis examine how the personal computer diffused throughout the U.S. economy from 1990 to 2002. Using a data set that reports technology use for hundreds of thousands of business establishments, the authors document the extent to which the intensity of use of personal computers (as measured by personal computers per 100 employees) varied across 160 metropolitan areas around the country....

The study found that in 1990, the San Francisco Bay Area was the most computer-intensive area in the country. Because the Bay Area is also home to many IT producers, this finding raises the question of whether one area may be more computer-intensive than another primarily because of the industries located in that area. For instance, the finance and high-tech industries are the most IT-intensive, regardless of location. Therefore, if an area has a large financial industry (like New York) or a high-tech center (like the Bay Area...), then that area might also be more computer-intensive than an area such as Hickory, N.C., where a larger share of the economy is based on furniture manufacturing (an industry that is not very IT-intensive).

The authors calculate computer-intensity measures that account for industry composition and still find very large and persistent differences across metropolitan areas in their computer usage in 1990 and again in 2002. Among others, the San Francisco Bay Area ranks very high, even after controlling for the industries located there.... The results... raise the question of why San Francisco might be out in front of most regions while others are so far behind. ...[T]wo factors ... appear to be particularly important: the human capital of an area (as measured by education) and the degree to which the area is an IT center and therefore generates spillovers to other industries in the area.... Doms and Lewis address the question of causation: Does computer adoption affect the education level of the workforce or does the education level of the workforce affect computer adoption? Using several approaches, Doms and Lewis find strong evidence that the education level of the workforce results in higher rates of computer adoption... cities with a higher share of the workforce that has completed 16 years or more of education... in 1990 are also cities that had high rates of computer adoption by 2002.

Another reason for differences between metropolitan areas... is that some benefit from the presence of a strong IT-producing sector... "spillover effects."... [T]he importance of these spillovers seems to be much less important in explaining cross-area differences in computer adoption than the overall level of education.... [A]reas that successfully adopt technologies tend to have superior economic performance. Consistent with this, Doms and Lewis find that areas that were computer-intensive in 1990 were also areas that enjoyed faster real wage growth for college-educated workers, and, to a lesser degree, for workers with less than a college education...

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