The distinct effects of Information Technology and Communication Technology on firm organization
Empirical studies on information communication technologies (ICT) typically aggregate the "information" and "communication" components together. We show theoretically and empirically that these have very different effects on the empowerment of employees, and by extension on wage inequality. If managerial hierarchies are devices to acquire and transmit knowledge and information, technologies that reduce information costs enable agents to acquire more knowledge and 'empower' lower level agents. Conversely, technologies reducing communication costs substitute agent's knowledge for directions from their managers, and lead to centralization. Using an original dataset of firms in the US and seven European countries we study the impact of ICT on worker autonomy, plant manager autonomy and spans of control. Consistently with the theory we find that better information technologies (Enterprise Resource Planning for plant managers and CAD/CAM for production workers) are associated with more autonomy and a wider span of control. By contrast, communication technologies (like data networks) decrease autonomy for both workers and plant managers. Our findings are robust to using exogenous variation in cross-country telecommunication costs arising from differential regulatory regimes.
We would like to thank the ESRC for help with financing this research at the Centre for Economic Performance. We thank participants at the LSE Labor workshop, at the NBER Summer Institute in Labor and Personnel Economics, at the Harvard/MIT workshop in Organizational Economics and at the Microsoft Economics workshop for their useful comments. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Nicholas Bloom & Luis Garicano & Raffaella Sadun & John Van Reenen, 2014. "The Distinct Effects of Information Technology and Communication Technology on Firm Organization," Management Science, vol 60(12), pages 2859-2885. citation courtesy of