Facebook Inc (FB): Can Zuckerberg’s Universal Internet Solve Income Inequality?

facebookJonathan H. Todd: Facebook Inc (NASDAQ:FB) founder/CEO/magnate Mark Zuckerberg wrote an op-ed in the WSJ this week, arguing for Universal Internet. In it he writes,

When people have access, they not only connect with their friends, families and communities, they also gain the opportunity to participate in the global economy. Research by McKinsey & Co. in 2011 shows that the Internet already accounts for a larger share of economic activity in many developed countries than agriculture and energy, and over the previous five years created 21% of GDP growth. Access to online tools lets people use information to do their jobs better and in turn create even more jobs, business and opportunities. The Internet is the foundation of this economy.

Of course, Zuckerberg has a product to sell, but his point is relevant – how well does internet connectivity create economic opportunity? While Zuckerberg focuses on less developed economies, can the same gains be made in the developed world? Or better yet, can internet connectivity solve the growing income inequality issue in developed economies?

Acting FCC Chairwoman Mignon Clyburn thinks so. In a recent a blog post, Crossing the Digital Divide, she argues that being connected online is essential to offline success. She writes,

As one speaker noted that more and more educators are using the Internet to assign and accept the very homework that these kids will have to complete once all the guests have left their Club. Now, more than ever, being online means being in line, along the pathway to better education, healthcare, job opportunities and information.

I also noted that while progress has been made in closing the digital divide, with broadband adoption increasing from about 60 percent in 2008 to 70 percent today – too many families, roughly one third or 100 million people, still don’t have access to the Internet at home. And unfortunately, certain populations find themselves disproportionally represented in those numbers. Fifty percent of rural Americans, 65 percent of the elderly, 58 percent of people living with disabilities, 41 percent of African Americans and 51 percent of Latinos don’t have broadband at home. Barriers such as affordability, lack of digital literacy and a failure to recognize the value of broadband keep these numbers high.

While I have not heard an argument that there is a market failure to lack of internet access – for example, just walk to your local library, if not Starbucks or McDonald’s, and connect – Clyburn’s point does seem to insinuate that lack of online connectivity is a driver of income inequality and/or wealth inequality. That is actually a reasonable argument, at least according to the paper The Skill Complementary of Broadband Internet by economists Anders Akerman, Ingvil Gaarder, and Magne Mogstad.

Mogstad and company argue that adoption of broadband internet impacts the productivity and labor incomes of different types of workers. They write,

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.

If that is correct, it seems pretty clear that internet access has a high social utility, might closing the digital divide, as Clyburn describes it, be a fairly simple, straightforward way of improving the economic outcomes of those groups have fallen behind due to their lack of connectivity?

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