Human Capital and Institutional Effects in the Compensation of Information Technology Professionals in the United States

Abstract

This paper studies the influence of supply-side and demand-side factors on the compensation of information technology (IT) professionals and considers the human capital and institutional explanations. We focus on returns to an MBA and the IT-related experience of IT professionals and use the largest data set of IT professionals that has been compiled to date in the United States to answer our research questions. We find that firms pay a significant premium for an MBA. Although firms value the IT experience of IT professionals, they value an MBA significantly more. The results of this study cast doubt on the belief that IT skills have a large firm-specific component. While IT experience is valued more than non-IT experience for IT professionals, firms value IT experience at other firms much more than they value firm-specific IT experience. Likewise, contrary to popular perception, we do not find evidence for complementarities among an MBA education and IT experience. Among institutional effects, firms in IT and IT-intensive industries pay significantly more to IT professionals than other firms and dotcom firms also paid significant premium in 1999 and 2000. However, these firms do not value an MBA or firm-specific IT experience any more than other firms. We discuss the implications of these findings for further research, for firms' compensation practices, and for individual IT professionals.

Keywords: IT professionals, MBA degree, IT Experience, Tenure, Compensation, Human Capital

JEL Classification: J30