We show theoretically and empirically that standard methods give downward biased estimates of productivity growth if technical change is factor-biased. We show how to correct for this bias and construct more reliable measures of the productivity gains from technical progress. We consider two empirical applications, one where the source of technical progress is unobserved, and a second where the source can be directly measured. In the first application, we use the frequently applied NBER-CES productivity database for the United States over the years 1958–2011. The bias is especially large in the last decade, making our finding relevant for the discussion on the slowdown in US productivity growth since 2000. In the second application, we study the adoption of broadband internet in Norwegian firms in the early 2000s. We have plausibly exogenous variation in the availability and adoption of broadband internet by firms. In both applications, we find that the factor-biased nature of technological progress, if ignored, leads to the erroneous conclusion of only modest productivity gains from adopting new technology when the actual gains are in fact considerable.

This article examines the incidence and distributional effects of value added taxes (VAT). A sharp change in the VAT policy on food in Norway is exploited. My findings suggest that taxes levied on food are completely shifted to consumer prices, while there is little spill-over effects to most other goods. To understand the distributional effects of the reform, one uses expenditure data and estimate the compensating variation of the tax induces price changes. I find that lowering the VAT on food attenuates inequality in consumer welfare, in part because households adjust their spending patterns in response to the price change.

Page 1. No. 524 THE QUAR T E RLY JO U RNAL OF EC ONO MICS November 2015 THE QUARTERLY JOURNAL OF ECONOMICS FOUNDED 1886 ARTICLES ERIC BUDISH, PETER CRAMTON, AND JOHN SHIM The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response 1547 KATHERINE BAICKER, SENDHIL MULLAINATHAN, AND JOSHUA SCHWARTZSTEIN Behavioral Hazard in Health Insurance 1623 BART J. BRONNENBERG, JEAN-PIERRE DUBÉ, MATTHEW GENTZKOW, AND JESSE M. SHAPIRO Do Pharmacists Buy Bayer? Informed Shoppers and the Brand Premium 1669 MARK AGUIAR, MANUEL AMADOR, EMMANUEL FARHI, AND GITA GOPINATH Coordination and Crisis in Monetary Unions 1727 ANDERS AKERMAN, INGVIL GAARDER, AND MAGNE MOGSTAD The Skill Complementarity of Broadband Internet 1781 …

Does adoption of broadband internet in firms enhance labor productivity and increase wages? And is this technological change skill biased or factor neutral? We exploit rich Norwegian data with firm-level information on value added, factor inputs and broadband adoption to answer these questions. We estimate production functions where firms can change their technology by adopting broadband internet. A public program with limited funding rolled out broadband access points, and provides plausibly exogenous variation of broadband adoption in firms. This enables us to address endogeneity of broadband adoption and examine how it shifts the production technology and changes the productivity and labor outcomes of different types of workers. We find that broadband adoption favors skilled labor by increasing its relative productivity. The increase in productivity of skilled labor is especially large for college graduates in fields such as science, technology, engineering and business. By comparison, broadband internet is a substitute for workers without high school diploma, lowering their marginal productivity. Consistent with the estimated changes in labor productivity, wage regressions show the expansion of broadband internet improves (worsens) the labor outcomes of skilled (unskilled) workers. We explore several possible explanations for the skill bias of broadband internet. We find suggestive evidence that broadband internet complements skilled workers in executing nonroutine abstract tasks, and substitutes for unskilled workers in performing routine tasks. When we use our production function estimates to construct measures of firm level productivity, we find that broadband internet accounts for a few percent of the standard deviation in total factor productivity across firms. Taken together, our findings have important implications for the ongoing policy debate over government investment in broadband infrastructure to encourage productivity and wage growth.