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

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July 11, 2014 10:33am NASDAQ:SOCL

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? If larger groups of people were connected online, might that somewhat help close the income inequality gap?

Broadband's effect on productivity, employment rates, and wages for high-skilled vs. low-skilled workers. Technology is crushing the need for low-skilled labor, increasing Income Inequality.

Broadband’s effect on productivity, employment rates, and wages for high-skilled vs. low-skilled workers. Machines are rapidly coming after the jobs of low-skilled labor.

While there hasn’t been much of an appetite to treat internet access as a utility or to create a national broadband system, like the one described by Mogstad, et al., in Norway, there have been market-based ideas to expand service – Google Fiber, for example, has a free tier for those who are lucky enough to live in one of their service areas. Though to be fair, there is the perpetual chatter of treating Google itself as a utility (as Robert Litan described for Brookings recently), so perhaps that muddles the comparison a bit.

Google Fiber's free service tier - will all digital services have an ad-supported option? Income Inequality

Google Fiber’s free service tier – will all digital services have an ad-supported option?

Perhaps assigning blame for income inequality on lack of internet connectivity among some populations is too narrow in scope, and this is just a sub-sect of the ongoing debate about how technology is shaping the future of the job market. Either way, it is clear that the ecosystem that high- and low-skilled operate within has permanently changed, and huge portions of the working population may be completely marginalized. Perhaps David Graeber’s thesis of “Bull Jobs” is the only that will save millions of low-skill, low-wage jobs.

This article is brought to you courtesy of Jonathan Todd.

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