Computerization and wage inequality between and within German work establishments

Recent evidence has revealed that a significant share of the rise in wage inequality has occurred at the establishment level, underscoring the importance of workplace-level analyses for understanding growing inequality. Using longitudinal matched employment data from Germany, we provide new insights into how investments in information and communication technologies (ICT) affect earnings inequality between and within establishments over time. Focusing on the mechanisms of inequality, cross-sectional estimates provide evidence of both skill- and class-biased technological change; however, establishment fixed effects models reveal that this relationship is driven by unobserved establishment heterogeneity. Despite a strong relationship between computerization and the rise in workplace heterogeneity, we find little evidence of a causal effect of computers on changes in establishment-level inequality. Rather, establishments that invest more greatly in ICT pay on average better wages and exhibit higher within-establishment inequality. These results challenge dominant explanations about the role of computerization in rising inequality, while also reinforcing the necessity of using organizational data to study inequality processes.