The impact of ultra-fast broadband on workers and firms

11/12/2019

After New Zealand’s central government initiated a large roll-out of ultra-fast broadband (UFB) in 2011, the use of UFB by firms increased markedly. 21 percent of firms had broadband in 2010, rising to 55 percent in 2016.

A new study from researchers at Motu Economic and Public Policy Research investigates the impact for employees of firms that adopted the new technology.

“There is a clear pattern of winners and losers following firms’ adoption of UFB,” said Dr Arthur Grimes, Senior Fellow at Motu and one of the researchers on the project alongside Motu Affiliate, Richard Fabling.

Firms that installed UFB increased employment by almost 3 percent relative to non-adopters.

“Adoption of UFB leads to some wage increases for incumbent workers, but these effects differ by gender, qualification level and skill type. The major beneficiaries are men with STEM qualifications, plus men with university level (non-STEM) qualifications,” said Dr Grimes.

The study also found that women with Masters level qualifications in non-STEM subjects may also benefit.

“Other groups either experience no wage benefit from UFB adoption or experience a small wage decrease of around 0.5 percent, compared to similar workers in firms that do not adopt UFB,” said Dr Grimes.

The results suggest that this new technology magnifies existing wage gaps between skilled (especially STEM-skilled) employees and other workers.

“This may occur because workers with STEM skills and workers in management roles are best placed to leverage a new UFB connection to the benefit of the firm,” said Dr Grimes.

The results may also point to a technology-related factor that could be contributing to the disparity between men’s and women’s wages.

“For instance, the task of leveraging new technologies may be allocated more to men than to women. Alternatively, men may be more likely than women to be rewarded through performance pay schemes when firm productivity rises,” said Dr Grimes.

Firm size is an important determinant of adoption throughout the sample period, with higher wage firms (within industries) more likely to be early adopters.

Firms that already had access to cable and cellular internet connections along with firms who said they needed high connection speeds were more likely to adopt UFB.

“Nevertheless, the types of firms connecting to UFB remains diverse. In 2016 the penetration rate varied from 17 percent for firms in the agriculture, forestry and fishing sector to 79 percent of financial and insurance services firms,” said Dr Grimes.

A copy of the research, “Ultra-fast broadband, skill complementarities, gender and wages” by Richard Fabling and Arthur Grimes, funded by Huawei is available on the Motu website.

Summary haiku:

Ultra-fast broadband
a flowering of earnings
for some but not all.