American Economic Review: Vol. 102 No. 1 (February 2012)


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The Internet and Local Wages: A Puzzle

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Forman, Chris, Avi Goldfarb, and Shane Greenstein. 2012. "The Internet and Local Wages: A Puzzle." American Economic Review, 102(1): 556-75.

DOI: 10.1257/aer.102.1.556


How did the diffusion of the internet affect regional wage inequality? We examine the relationship between business investment in advanced internet technology and local variation in US wage growth between 1995 and 2000. We identify a puzzle. The internet is widespread, but the economic payoffs are not. Advanced internet technology is only associated with substantial wage growth in the 6 percent of counties that were already highly wealthy, educated, and populated and had IT-intensive industry. Advanced internet and wage growth appear unrelated elsewhere. Overall, advanced internet explains over half the difference in wage growth between already well-off counties and all others. (JEL J31, L86, O33, R11, R23)

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Forman, Chris (GA Institute of Technology)
Goldfarb, Avi (U Toronto)
Greenstein, Shane (Northwestern U)

JEL Classifications

J31: Wage Level and Structure; Wage Differentials
L86: Information and Internet Services; Computer Software
O33: Technological Change: Choices and Consequences; Diffusion Processes
R11: Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
R23: Urban, Rural, Regional, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics

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