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NETNOMICS: Economic Research and Electronic Networking

Erschienen in:

01.12.2019

Internet use and labor productivity growth: recent evidence from the U.S. and other OECD countries

verfasst von: Edward Wei-Te Hsieh, Rajeev K. Goel

Erschienen in: NETNOMICS: Economic Research and Electronic Networking | Ausgabe 2-3/2019

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Abstract

This study provides evidence on the nature and extent of the effect of Internet usage or penetration on labor productivity growth, while focusing on the recent experience in OECD countries. The basic model modifies the traditional labor-augmented production function approach by integrating Internet usage as a factor that improves labor quality. Variables on output, capital, and labor are extracted from official OECD publications, and data on the penetration ratio, a proxy for Internet usage, is obtained from an online source. The result is a panel that covers 28 OECD countries, including the U.S., over the time period from 2001 through 2016. Parameter estimates for Internet usage across the models are found to be positive, albeit with low statistical support. Based on a unique historical survey data set for the U.S. that separates Internet use at home from the use at work, a descriptive analysis for the U.S. suggests that growth of Internet use at work lowers productivity growth.

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Calculations from the data published by the U.S. Bureau of Labor Statistics show that, starting from 1970, the 10-year average non-farm labor productivity (output per hour) growth rates are 1.79% (1971–1980), 1.66% (1981–1990), 2.22% (1991–2000), 2.67% (2001–2010), and 0.67% (2011–2017). During the 10-year period from 1996 through 2005, the average rate of growth of labor productivity reached a high of 3.01%, regardless of the dot.com collapse at the turn of the new century. Even after the outbreak of the 2008 financial crisis, U.S. labor productivity growth reached 3.5% and 3.4% in 2009 and 2010, although it then started to dwindle after 2010, respectively, but still showed positive growth.

During the same time period, the 10-year average real annual GDP growth rates are 3.31% (1971–1980), 3.21% (1981–1990), 3.61% (1991–2000), 1.75% (2001–2010), and 2.11% (2011–2017). For 1996 through 2005, the 10-year average is 3.46%.

See the literature review in Najarzadeh, Rahimzadeh, and Reed [19].

To be explained more carefully in the text, the empirical estimations include data on the 28 OECD member countries.

It is possible that there may be reverse feedbacks, whereby TFP growth affects Internet usage. However, given the lags associated with such feedbacks, the main direction of causality seems to run from Internet usage to productivity (also see Mastromarco and Zago [18]).

Internet usage could alternatively be measured by broadband subscriptions (see https://data.worldbank.org/indicator/IT.NET.BBND.P2). However, since many businesses might have Internet access but not broadband subscriptions, Internet subscriptions would seem to better capture the impact of the Internet on productivity.

Another possibility could be that the growth of the Internet could have spillovers on some white-collar crimes (see [6]), which could undermine productivity.

Treating human capital as a separate stock of capital from physical capital, Eq. (1) can be re-specified as

$$ Y(t)=A(t)K{(t)}^{\alpha }H{(t)}^{\gamma }{\left[q\left(I(t)\right)L(t)\right]}^{\beta },\kern0.5em \mathrm{and}\ q={aI}^b $$

where H is human capital, and the growth Eq. (6) becomes:

$$ \dot{Y}-\dot{L}=\dot{A}+\alpha \dot{K}+\gamma \dot{H}+\beta b\dot{I}+\left(\beta -1\right)\dot{L} $$

When treating human capital as another labor-quality-augmenting factor, Eq. (1) becomes

$$ Y(t)=A(t)K{(t)}^{\gamma }{\left[q\left(I(t),H(t)\right)L(t)\right]}^{\beta },\kern0.5em \mathrm{and}\ q={aI}^b{H}^c, $$

and Eq. (6) becomes:

$$ \dot{Y}-\dot{L}=\dot{A}+\alpha \dot{K}+\beta c\dot{H}+\beta b\dot{I}+\left(\beta -1\right)\dot{L} $$

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Najarzadeh, R., Rahimzadeh, F., & Reed, M. (2014). Does the internet increase labor productivity? Evidence from a cross-country dynamic panel. Journal of Policy Modeling, 36(6), 986–993.CrossRef

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Titel: Internet use and labor productivity growth: recent evidence from the U.S. and other OECD countries
verfasst von: Edward Wei-Te Hsieh
Rajeev K. Goel
Publikationsdatum: 01.12.2019
Verlag: Springer US
Erschienen in: NETNOMICS: Economic Research and Electronic Networking / Ausgabe 2-3/2019
Print ISSN: 1385-9587
Elektronische ISSN: 1573-7071
DOI: https://doi.org/10.1007/s11066-019-09135-2

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