Does Future PC Use Determine Our Wages Today? - Evidence from German Panel Data

Abstract

Using 1985–99 data from the German Socio-Economic Panel Study (GSOEP) we confirm the hypothesis that existing computer wage premiums are determined by ability or other unobserved individual characteristics rather than by productivity effects. In addition to the conventional longitudinal regression analysis, the two competing hypotheses were tested by employing future PC variables in the wage regressions in order to obtain a further control for worker heterogeneity. The finding that future PC variables have a statistically significant effect on current wages leads us to conclude that computer wage differentials can be attributed to worker heterogeneity rather than to computer-induced productivity.