Does adoption of broadband internet in firms enhance labor productivity and increase wages? And is this technological change more beneficial for for high-skilled workers? A new IZA discussion paper by Anders Akerman, Ingvil Gaarder and Magne Mogstad answers these questions using rich Norwegian data with firm-level information on value added, factor inputs and broadband adoption. The authors exploit a public program that rolled out broadband access points to examine how it shifts the production technology and changes the productivity and labor outcomes of different types of workers. They 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 the labor market outcomes of skilled workers and worsens the prospects of the unskilled. The authors explore several possible explanations for the skill bias of broadband internet. They find suggestive evidence that broadband internet complements skilled workers in executing non-routine abstract tasks, and substitutes for unskilled workers in performing routine tasks. Taken together, the findings have important implications for the ongoing policy debate over government investment in broadband infrastructure: On the one hand, broadband internet can enhance firm productivity. On the other hand, it seems to have strong distributional implications favoring skilled workers, which could be a barrier to government investment in broadband infrastructure.