A Short-Run View of What Computers Do: Evidence from a UK Tax Incentive

Abstract

We study the short-run causal effect of Information and Communication Technology (ICT) adoption on employment and wage distribution. We exploit a natural experiment generated by a tax allowance on ICT investments and find that the primary effect of ICT is to complement nonroutine, cognitive-intensive work. We also find that the ICT investments led to organizational changes that were associated with increased inequality within the firm and we discuss our findings in the context of theories of ICT adoption and wage inequality. We find that tasks-based models of technological change best fit the patterns that we observe. (JEL D22, J23, J24, J31, M15, O33)