Broadband helps create jobs, not higher wages

Increased access to high-speed Internet connections helps create jobs, though it doesn't always result in higher wages, according to a new research report from the Public Policy Institute of California.

Areas of the U.S. that went from having no broadband provider to as many as three in the period from 1999 to 2006 had faster job growth than the rest of the country, according to the study, presented in Washington, D.C., at an event hosted by the New America Foundation, a nonpartisan think tank. Along with more jobs come additional employers and new residents who compete with workers for jobs. That in turn keeps pressure on salaries, the report says.
"This expansion in the labor supply keeps the employment rate from going up, and prevents wages and earnings from rising rapidly," says PPIC fellow Jed Kolko, a former research director at Forrester Research. "While the effect on places seems very clear, the effect on residents is somewhat ambiguous."
Because the population increases at the same time more jobs are created, the rate of joblessness changes little, Kolko says. Existing residents have to compete harder for new jobs and see no change in their chances of getting a job, according to the report.
Broadband stimulus expectations
The results may be useful in assessing the impact of government plans to spend $7.2 billion to fund grants aimed at improving access to broadband in the U.S., especially in areas that have little access to fast Web connections. "We looked at the recent past as our guide for what is likely to happen as a result of broadband stimulus initiatives designed to raise availability," Kolko says.
William Lehr, a research scientist and economist at the Massachusetts Institute of Technology who has researched the economics of broadband access, says Kolko's work may help manage expectations around the benefits of broadband. "It's part of providing a richer understanding of what the available data can and can't tell us," Lehr says. "The benefits of job growth from broadband may not be as great going forward as some of the research in the past has suggested."
People who live in areas where high-speed Internet access is not available or too expensive are left at a social and economic disadvantage, broadband advocates say. In an era when employers typically demand a familiarity with the Internet for even entry-level jobs, and when elected officials communicate with the public via e-mail and Twitter, there's a case to be made that people without access to affordable broadband miss out on significant aspects of modern American life. The largest providers of high-speed Internet access include AT&T, Comcast, and Verizon Communications.
Last year, as part of the $787 billion American Recovery & Reinvestment Act, Congress approved $4.7 billion in funding through the National Telecommunications & Information Administration, with the remaining $2.5 billion going to the Agriculture Dept.'s Rural Utilities Service. The first batch of funding, about $183 million, was awarded to 18 different organizations in December, and another $7.5 million was awarded in a grant to the city of Los Angeles on Jan. 13.
Job creation effect
Increased availability of broadband tends to result in more jobs for companies with high concentrations of professional, administrative, and scientific needs, and fewer for manufacturing firms, according to the research. The effect is also stronger in places with lower populations as local businesses find ways to reach new markets farther afield. Increased availability of broadband also results in higher tax returns for municipal and county governments as property values increase and the number of people paying taxes rises, the study found.
Researchers were unable to find a relationship between broadband expansion and telecommuting. "Back in the mid-1990s, there were lots of popular articles that argued that broadband would enable us to move to the places we really wanted to live, as opposed to the cities that we live in," Kolko says. "There's actually no evidence for that."
Brian Mefford, chairman and CEO of Connected Nation, a nonprofit organization that encourages broadband development, says the report indicates the broadband stimulus program will ultimately pay off economically. "We're finally seeing a correlation between economic growth and broadband," Mefford says. "But it shows that there's less of an impact until people are actually using the technology. That shows there's a need for the stimulus to include programs that encourage demand."
Hesseldahl is a reporter for Bloomberg BusinessWeek.