The effect of new technology on relative demands for workers has been the subject of much research in economics. Krueger (1993) and others have studied the impact of computers on earnings in the US and elsewhere. Such studies have been criticised for ignoring the possibility of bias due to unobserved heterogeneity between computer users and non-users, resulting in computer users not being a random subsample of all workers. As well as looking at the effects of computers on earnings in the UK, this paper extends previous analyses by using a sample selection framework to deal with the bias problem. Results indicate not only that returns to computer use are positive but that it is important to correct for the sample selection bias.
I IntroductionOne of the most phenomenal changes of technology in the twentieth century was in the field of computers.1 Since the early fifties, when the Univac Division of Remington Rand built the first commercial computer, both the industry and the product have undergone considerable changes. In the early periods IBM held a near monopoly in mainframe computers and a large share of the market in most other types of computers. The late 1970s and early 80s saw a revolution in this industry, with the expansion of the market in the mini and personal computer segments and the entry of hundreds of firms producing clones. The impact on the industry of such severe competition has been a reduction in the 4-firms concentration ratio to 44% of the market.2 The impact on the product has been a tremendous increase in speed, storage capacity and handling complex data, accompanied by reduction in price. A study by Berndt and Griliches (1993) estimated a reduction of 28% in the price of computers in the US between 1982 and 1988, after adjusting for quality.