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NOBODY disputes that wage inequality is on the rise in most rich countries, and especially in America. Exactly how much inequality has gone up remains a matter of dispute, but the trend is clear. And it is not just a matter of incomes soaring at the very top and/or plunging (relatively speaking) at the very bottom: the distribution of incomes is being stretched throughout its span. Why?

A plausible one-word answer, von might think, is “computers”. Information technology replaces the unskilled; less demand means lower wages: At the same time computers complement the skills of more sophisticated types — the “knowledge workers” who represent, according to pundits such as Robert Reich, the future of work. This complementarily raises individuals’ productivity and thereby increases their earning power. The prosperous get more so, the unskilled get dumped.

Superficially appealing, the knowledge-worker part of this story has always seemed, on reflection, half-baked. Its advocates concentrate on the wagedispersing role of PCs. But the trend of rising inequality dates back much further than the 1980s, when the PC caught on. Also, research (as well as casual observation) shows that office PCs are chiefly used for word processing and cranking out spreadsheets. It is hard to believe that top managers’ wages are rising relative to the mean because bosses are doing their own typing. And the typical spreadsheet cruncher is not a corporate top-dog but a middle-level clerk or accountant whose wage is failing to keep pace with his boss’s.

Statistics do show that wages are correlated with use of PCs. But the question is whether PCs have raised workers’ wages or were merely put on the desks of workers who were well-paid to begin with. Among evidence for the latter view is one study that showed pay to be as strongly correlated with the use of pencils as with the use of PCs. As yet, nobody has argued that pencils have shifted the income distribution.

A new study by Timothy Bresnahan of Stanford University reflects on these and other findings and offers a quite different view. Yes, the paper argues, IT has had, and will continue to have, profound effects on jobs and wages—but not through the largely bogus knowledge-worker channel.

Rather than emphasising PCs as a way to improve the productivity of individual workers, Mr Bresnahan sees computing as an agent of revolution in whole organisations. Beginning not with PCs but much earlier, computers have indeed been used as substitutes for low-skill clerical workers. The pattern began in the 1950s, when hugely expensive mainframe computers were first used to save correspondingly huge sums in information-intensive functions in the financialservices industry, then in accounting, payroll and inventory- control tasks in other big organisations.

It is unsurprising that this kind of innovation, which spread in scale and scope as the cost of computing came down, should have lowered the wages of the unskilled. But how did it raise the wages of people higher up the income range? Mr Bresnahan’s answer is that it raised the demand for two kinds of worker—neither of them knowledge workers in the Reichian sense.

First, as back-office jobs (susceptible to automation) have declined in importance, front-office jobs (which require certain bundles of skills, especially social skills) have increased. In other words, there is less mindless paper-shuffling and more dealing with customers, suppliers and other humans. Second,- such far-reaching organisational innovation puts exceptional demands on managers—not as power-users of Windows, heaven forbid, but as leaders of men. The phase of mere automation is difficult to manage in its own right; beyond that lies the even more important phase of identifying and pursuing the new business opportunities that the technology has brought within reach. Front-office workers with “people skills” and good managers (in the old-fashioned sense of that term) are the main winners from the IT revolution.

This story might seem more persuasive as an account of the early stages of the IT revolution than of what is happening now. Mr. Bresnahan argues, on the contrary, that this pattern of innovation is going to persist. PCs, as such, he regards as an unimportant technology so far as the labour market is concerned. However, networks of PCs are another thing: the advance of networked-computer systems in business has already led, he argues, to a new surge of organisational innovation. Inter-organisational networking, involving the automation of company bureaucracies devoted to buying and selling, could in future be as fruitful as the earlier phases of large-scale business automation: as he points out, “the amount of mid-skill white-collar work in buying and selling is stunning.”

The only drawback of this emphasis on the organisational as opposed to individual-worker complementarily of IT is that it makes it harder to say exactly which skills the economy is going to need. Indeed, if Mr. Bresnahan is right, economists’ standard ways of categorising workers according to skill are wrong: there is more (or less) to it than education and training, narrowly defined. Thanks to computers, oddly enough, the ability to get on well with other people is going to be even more valuable in future than it has been up to now. Possible slogan for far-sighted governments: courtesy, our strategic economic resource.

Why does the author compare computers with pencils?

  1. to show that pencils are strongly correlated with pay
  2. to show that pencils have not shifted income distribution
  3. pencils and computers are both tools used by the office worker
  4. to debunk the computer theory of wage disparities
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