Information Technology: How It Affects Work Practices and Wages

We have only to pick up the daily newspaper to read about the creation of yet another fabulous fortune based on technology. But even as high-tech millionaires proliferate, there has been considerable debate about the impact that technology has had on wages of those who use technology in their daily work practices. Some argue that technology has eliminated jobs and had a negative impact on wages, while others counter that it has improved productivity and boosted wages.

Wharton’s Chip Hunter and John Lafkas recently completed a study in which they examined information technology, work practices, and wages for the job of customer service representatives (CSRs) in bank branches. They found that simply introducing technology did not by itself guarantee improvements in productivity or increases in wages. Rather, more depends on how the companies manage technology and help their employees improve their skill level. In other words, context and management style matter.

While most research associates technology with higher wages for workers, Hunter and Lafkas asked whether technologies might be deployed to construct high-wage and low-wage jobs in roughly similar settings. The authors point out that technology can affect wages in two distinct ways: it can contribute to shifts in the distribution of workers across different wage levels. Typically this results in shifting workers from lower to higher-paying jobs. But technology can also affect wages by altering the content of jobs without shifting workers.

IT can reveal previously hidden relationships between different kinds of information in ways that would not have been possible prior to the implementation of technology. The authors refer to this as “informating,” and claim that this kind of IT changes the nature of the work substantially, requiring higher-order skills of workers if they are to use it effectively.

As the authors point out, technology may make a job considerably less complex and thus require less skill. The authors refer to this dark side of technology as deskilling: when new technology is associated with reductions in skill, autonomy, and wages for workers. They observe, “Deskilling arguments emphasize how managements use technology to extend their control over the workplace. This pursuit of control comes at the expense of workers’ earnings.”

Context affects the outcome: The deployment of identical technologies can often result in quite different results. Higher wages will often be found where technology and work practices interact to shift sets of decisions to workers that were formerly the province of management.

Hunter and Lafkas began by comparing the functions of customer service representatives at two different banks. Each bank had put a number of the basic CSR tasks on-line, thus removing pen-and-paper steps that had once been required for opening and closing of accounts, and making changes to account information.

At a bank the authors call “Second Bank,” IT was associated with job upgrading. The labor-saving features of the IT systems provided the CSRs with the opportunity to focus their efforts more on cross selling and customer service and less on paperwork. At the “Third Bank” the impact was quite different: IT was implemented in such a way that fewer skills were used. The sales-supporting, “informating” IT was only slightly more powerful at Second Bank. But the CSRs at Second Bank had more discretionary decision-making authority than their counterparts; the work practices at Third Bank were consistent with a command-and-control culture more typical of industry traditions. “Second Bank” also had formal Quality Circles and required their CSRs to participate in regular meetings to improve the bank’s ability to serve customers, “Third Bank” had no such practices.

The end result was that at Second, IT had allowed the CSR job to be upgraded. “At Third, on the other hand, IT was implemented in a deskilling fashion,” note the authors. “Combined with limits on discretionary behavior of the CSRs, it allowed the bank to accomplish its basic tasks at considerably lower costs.”

The pay scale at Second Bank was about 20% higher than at Third. Management at Second felt comfortable with the higher pay, believing that it allowed them to draw more highly skilled employees, to offer premium service and to achieve higher sales. Management at Third, however, believed that Second’s pay-scale was too high, eating into their margins and leaving them more vulnerable to a takeover.

The authors also drew data from a large scale survey of bank branches to test their hypotheses statistically. Banks representing more than 75% of the total assets in the industry elected to participate in the survey. The large sample gave the authors a variety of technological and work practice regimes with which to compare and contrast their results from Second and Third Banks. The survey data confirmed their hypotheses. Informating technology was straightforwardly related to higher wages. The relationship between the use of information technology designed to automate basic tasks, and the wages of workers who used the technology, depended on the work practices in the bank branch.

Businesses have spent billions of dollars on technology over the past decade and show no sign of reducing their expenditures. Executives believe that technology improves productivity. But the equation is not quite so simple, as Hunter and Lafkas make very clear. Management style and the degree to which workers are allowed to use their judgment and discretion play a key role in determining just how productive the implementation of technology will be in any given organization.