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The Remainder Effect: How Automation Complements Labor Quality, James Bessen, Erich Denk, Chen Meng
The Remainder Effect: How Automation Complements Labor Quality, James Bessen, Erich Denk, Chen Meng
Faculty Scholarship
This paper argues that automation both complements and replaces workers. Extending the Acemoglu-Restrepo model of automation to consider labor quality, we obtain a Remainder Effect: while automation displaces labor on some tasks, it raises the returns to skill on remaining tasks across skill groups. This effect increases between-firm pay inequality while labor displacement affects within-firm inequality. Using job ad data, we find firm adoption of information technologies leads to both greater demand for diverse skills and higher pay across skill groups. This accounts for most of the sorting of skills to high paying firms that is central to rising inequality.
From Productivity To Firm Growth, James Bessen, Erich Denk
From Productivity To Firm Growth, James Bessen, Erich Denk
Faculty Scholarship
It is widely held that more productive firms grow faster, thus reallocating resources and raising aggregate productivity. Yet little empirical research identifies the features of the mechanisms affecting this process. This paper develops and tests a general model encompassing several mechanisms used to overcome informational frictions to growth. We find that firm size, productivity dispersion, and large firm investments in intangibles are all significantly related to changes in firm growth in response to productivity. These factors can account for much of the decline in the response to productivity since 2000 (Decker et al. 2020). Also, industry concentration is directly related …
Firm Differences: Skill Sorting And Software, James Bessen, Chen Meng, Erich Denk
Firm Differences: Skill Sorting And Software, James Bessen, Chen Meng, Erich Denk
Faculty Scholarship
Recent research shows that much recent rise in wage inequality comes from growing differences between firms, especially sorting of skilled workers to high-paying firms. This paper explores the role of proprietary software in these changes. Using job ad data, we find that proprietary software is strongly associated with firm wage fixed effects and also with firm skills. Software accounts for half or more of skill sorting across firms. Moreover, both skill sorting and firm wage effects are greater for larger firms. The huge growth in proprietary software helps explain the growth in skill sorting that increases wage inequality.
Information Technology And Industry Concentration, James Bessen
Information Technology And Industry Concentration, James Bessen
Faculty Scholarship
Industry concentration has been rising in the US since 1980. Firm operating margins have also been rising. Are these signs of declining competition that call for a new antitrust policy? This paper explores the role of proprietary information technology systems (IT), which could increase industry concentration and margins by raising the productivity of top firms relative to others. Using instrumental variable estimates, this paper finds that IT system use is strongly associated with the level and growth of industry concentration and firm operating margins. The paper also finds that IT system use is associated with relatively larger establishment size and …
Declining Industrial Disruption, James Bessen
Declining Industrial Disruption, James Bessen
Faculty Scholarship
Recent research finds that markups are rising, suggesting declining competition. But does less price competition mean less Schumpeterian “creative destruction”/industry dynamism? This paper reports the first recent estimates of trends in the displacement of industry-leading firms. Displacement hazards rose for several decades since 1970 but have declined sharply since 2000. Using a production function-based model to explore the role of investments, acquisitions, and lobbying, we find that investments by dominant firms in intangibles, especially software, are distinctly associated with greater persistence and reduced leapfrogging. Software investments by top firms soared around 2000, contributing substantially to the decline. Also, higher markups …
The Policy Challenge Of Artificial Intelligence, James Bessen
The Policy Challenge Of Artificial Intelligence, James Bessen
Faculty Scholarship
New "artificial intelligence" (AI) technology promises to bring dramatic social and economic changes, demanding major policy changes. In intellectual property and antitrust law, AI will exacerbate a damaging trend: across all major sectors of the economy, proprietary information technology is increasing the market dominance of large firms. This trend might not seem like bad news, but it is evidence of a slowdown in the spread of technical knowledge throughout the economy. The result is rising industry concentration, slower productivity growth and growing wage inequality. The key challenge to IP and antitrust policy will be counter this trend yet maintain innovation …