The Effects of Broadband Internet Expansion on Labor Market Outcomes

Abstract

The author analyzes the effects of the expansion of broadband Internet access from 1999 to 2007 on labor market outcomes throughout the United States. Recent federal policy programs have allocated $18 billion toward subsidizing the spread of this technology, especially to rural areas. Understanding the interplay between technology, firms, and the labor market is important for evaluating whether additional scarce government resources should be allocated to improve this type of infrastructure. Using models that include county and time fixed effects, the author finds that gaining access to broadband services in a county is associated with approximately a 1.8 percentage point increase in the employment rate, with larger effects in rural and isolated areas. Most of the employment gains result from existing firms increasing the scale of their labor demand and from growth in the labor force. These results are consistent with a theoretical model in which broadband technology is complementary to skilled workers, with larger effects among college-educated workers and in industries and occupations that employ more college-educated workers.

Keywords: Internet, broadband, employment rate, skill-biased technical change

JEL Classification: J24, J61