ACADEMIC ARTICLE SUMMARY
Internet and Local Wages, The: A Puzzle
Article Source: American Economic Review, Vol. 102, No. 1, 2012
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ARTICLE SUMMARY
Summary:
This paper examines why Internet-related investment increased wages in only some US counties.
POLICY RELEVANCE
Policy Relevance:
Subsidizing telecommunications and internet infrastructure in sparsely-populated areas is unlikely to result in wage growth.
KEY TAKEAWAYS
Key Takeaways:
- In the 1990s advancements in telecommunications and Internet technology lowered the cost of operating a firm in geographically-isolated areas.
- Firms producing, and investing in, these technologies grew rapidly.
- But, was there a relationship between Internet adoption and growth in a region?
- The authors examine data on wages, Internet industry concentration, population density, and education at the county level in the United States between 1995 and 2000.
- Increases in wages were related to Internet adoption only in the most-populated, richest, most-educated counties.
- These well-off counties averaged 28% wage growth; other counties experienced only 20% wage growth, and the Internet explains half of the difference.
- Four factors were necessary, simultaneously, for Internet-related wage growth: county population over 150,000, high education, high income, and preexisting technology and telecommunications firm presence.
- It remains an economic puzzle why investment in Internet-related technology was widely dispersed while wages increased only in a small fraction of geographical areas. Economic theory might predict that wages would rise everywhere that concentrations of capital investment, like Internet access, increased.
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About Shane Greenstein
Shane Greenstein is the Martin Marshall Professor of Business Administration and co-chair of the HBS Digital Initiative. He teaches in the Technology, Operations and Management Unit. His areas of interest include: digital economy, information technology, networks, and technological innovation. Professor Greenstein is also co-director of the program on the economics of digitization at The National Bureau of Economic Research.
