United States Small Business Administration
Office of Advocacy
The Effect of Computer Use on the Earnings
of Workers by Firm Size
by Rakesh Kochhar
1994, 104p. Joel Popkin and Co., 1101 Vermont Ave. N.W., Washington, DC 20005, under contract no. SBA8033OA93
The use of computers by workers is an important element in the current employment shift toward higherskill jobs. The extent of small businesses' participation in this shift, and the wage benefits by firm size to employees participating in the shift, are the subjects of investigation in this study.
Many policymakers believe that the competitive potential of U.S. businesses - both at home and abroad - will depend on the ability of firms to incorporate computerbased technologies and to upgrade the skills of their workers. It is important to understand how small and large firms have adapted their work places to the emerging informationbased economy and whether they have realized similar gains in productivity from the use of computers. Productivity gains from the use of computers is expected to be best measured by the wage differential of computer users over other workers in the same industry.
Scope and Methodology
Data for this research became available with the inclusion of a question on computer use in the Current Population Survey (CPS) of January 1991. These data were merged with data on firm size from the March 1991 survey and wage data from the April 1991 survey. The CPS is a regular survey of households by the Bureau of the Census and covers over 50,000 households. The survey panel changes from month to month, so only those households included in the survey in all three periods could be used. The result was 28,407 observations that matched across all three time periods, or less than half of the 67,374 individuals reporting on employment in January 1991. Workers under the age of 16 and over the age of 65 were eliminated from the sample, as well as a few workers with very low wages. The final sample was 18,009 individuals.
The data permitted further analysis by worker age, education, sex, job tenure, industry, and occupation. The analysis revealed the wage returns to computer usage to be robust and nearly constant across firm sizes, industries, and all of the above worker characteristics. Computer usage in informationbased industries was the highest; production occupations showed the lowest computer usage by workers. Growth industries were analyzed separately and revealed higher computer usage among workers in growing industries.
- Small firms were found to be hiring collegeeducated workers and creating jobs at the top end of the wage spectrum in greater proportions than in the past. Among new hires, small firms employed 58.9 percent of all workers and 54.8 percent of new hires in the top wage quartile. In the time period covered in the report, small firms were responsible for the majority of new hiring at the high end of the wage spectrum. The author states, "Between 1990 and 1991 most highwage jobs were being created by small firms."
- Computer usage was twice as high among employees in the highest wage quartile compared with those in the lowest quartile. This relationship held for all firm sizes and lengths of job tenure. The overall average was 29.6 percent of workers using computers in the lowest wage quartile and 74.2 percent using computers in the highest wage quartile. The wage return to computer usage was present even among new hires in the under 25employee firm, where the lowest wage quartile showed 21.6 percent of workers using computers and the highest wage quartile showed 58 percent using computers. To the extent that wage is based on the marginal value of worker product, computers are an important influence for higher worker productivity in firms of all sizes.
- The highest premium for computer users over nonusers was found to be in small firms in industries with the highest growth rate, where a premium of nearly 24.8 percent in wages was observed. Fastgrowing large firms did nearly as well, with an estimated 23.8percent wage premium for computer users.
- Computer usage was highest in fastgrowing firms of more than 1,000 employees, with 69 percent of employees using computers; it was lowest in slow growth firms with fewer than 25 employees where less than 31 percent used computers in their occupation. The author suggests that the 25employee level may be a threshold for the adoption of computer technologies.
- Occupations requiring information processing exhibit computer usage four times as high as occupations that are mostly productionoriented. Informationprocessing occupations show computer usage to be 71.9 percent for small firms and 81.3 percent for large firms.
- Women use computers at a higher rate than men in firms of all sizes. More than 50 percent of women in small firms use computers on the job; the rate for men is below 40 percent.
The complete report is available from:
National Technical Information Service
U.S. Department of Commerce
5285 Port Royal Road
Springfield, VA 22161
(703) 487-4639 (TDD)
Order Number: PB95239984
Cost: A06; A02 Microf.
*Last Modified 6-11-01