This article appeared in the Financial Times on January 14, 2011. It was written by Gillian Tett (pictured on the right, photo credit to the Financial Times). It refers to research by yours truly, Chris Forman and Avi Goldfarb. The specific paper she discusses is titled “The Internet and Local Wages: a Puzzle.” Check it out.
Will the iPad flatten us all?
As you trudged back to work this month, did you head to an office in a large urban centre, be that Baltimore, Bristol or somewhere else? Or did you sit down at your computer – or with an iPad – in a pleasant ski lodge, beach house or even a simple house in a poorer rural region, such as Arkansas or Wales?
Right now those questions matter not just for your own well-being, but to wider social and economic policy, too. More than a decade ago, the US author Thomas Friedman caused a stir by suggesting that the internet was turning the world “flat”: by connecting everyone, new technologies were creating competition and opportunities across borders, enabling many jobs to migrate….
In some ways, this sounds very frightening to American policymakers: in recent months, for example, there has been endless hand-wringing about the idea that American jobs are now flocking to India or China in this “flat” world.
However, this technological flattening is potentially liberating too. Open any lifestyle magazine these days, and you will see plenty of pieces implying that anybody armed with an iPad can now (theoretically) work as easily from Vail, Colorado, as Wall Street, New York. And if the internet is making the world flat across national borders, it should also be able to level America – or so the US administration hopes.
Indeed, last year the Obama administration duly set about trying to create a bit of this “flattening” by creating a $7.2bn plan to boost internet infrastructure, particularly in more deprived areas: the theory was that through these internet ties rural regions should enjoy a new wave of job growth and higher wages. Has this actually happened? Last week I attended the American Economic Association meeting in Denver, and some of the papers I heard gave me pause for thought.
In the past few months three economists at Northwestern University and Georgia Institute of Technology and the University of Toronto, Shane Greenstein and Chris Forman and Avi Goldfarb, have tried to monitor internet penetration and wage trends across the nation. Sadly for the Obama government, this study did not uncover any evidence that the arrival of faster broadband in different areas has boosted wages for most Americans. However, there is one notable exception: when high-speed internet arrived in urban areas, the highest-earning workers typically saw their wages jump even further.
The people who were expected to benefit least, in other words, ended up gaining most. But why? As Greenstein says: “If stockbrokers in New York can reach a small town in Iowa, and the small town in Iowa can now reach New York, then you have to wonder why can’t Iowa get the wage growth too?”
One answer is that this just reflects a wider trend of growing wage inequality in America. But I suspect that there is also a more subtle issue of culture and social systems at work. Stockbrokers in New York – or highly paid urban workers in general– typically have the incentives and training to chase new entrepreneurial activities – after all they exist in highly competitive cultures, which are created and reinforced through face-to-face contact and where ideas collide all the time. It would be nice to hope that you can replicate that in a small town in Iowa; but transmitting this subtle cultural pattern cannot be done over the internet. Even in an era where disembodied digital rules, social interaction still matters a lot.
The good news, if you like, is that the picture on wage growth is not entirely reflected in job numbers. A separate study conducted by Jed Kolko of the Public Policy Institute of California, for example, did find some – albeit “tentative” – evidence that the arrival of broadband sometimes created jobs. (Sadly, though, Kolko says he found absolutely no evidence this was occurring in so-called “idyllic” spots; anyone looking for an IT employment boom at beach resorts must dream on.)
But even if the Greenstein and Forman and Goldfarb study is just a small quirk – and I rather suspect it is not – it nevertheless points to an interesting issue around this “flattened world”. A decade ago, many pundits hoped that the internet would create more equality of opportunity and thus more egalitarianism. But could it be that the internet will simply create new forms of inequality? Even if everyone can get high-speed access, not everyone is equally placed to use it; education, cultural context and social ties still count for a lot, and in a very unequal way. Even with an iPad, in other words, don’t start dreaming of escaping to the beach or ski resort quite yet.