Is new technology “transformative” or “disruptive”? I’ve heard this topic hotly debated at meetings both within the World Bank and more broadly. The issue is not just linguistic hair-splitting. Technology optimists prefer the first term and see new technologies, digitization in particular, as an opportunity for low-income developing countries to leapfrog into the 21st century. Moonshot Africa, an ambitious World Bank initiative to connect individuals, firms, and governments in Africa to fast internet is inspired by this vision. Technology pessimists on the other hand emphasize the disruptive effects digital technologies are expected to have on labor markets. Concerns about robots and algorithms replacing human labor increasingly dominate the public debate not only in advanced economies, but also in emerging and developing economies. Against this background, it is natural to ask how these two views are compatible. To be more specific: How will Moonshot Africa create jobs on a continent where job creation is needed more than anywhere else in the world with Africa’s working-age population projected to rise by 70% in the next twenty years?
To date, there has been little work on this question. But, a recent paper by Jonas Hjort and Jonas Poulsen, “The Arrival of Fast Internet and Employment in Africa,” published in the American Economic Review in March 2019, takes up this exact question and gives technology optimists reason for hope.
In the 2000s, consortia consisting of private investors, African governments and multilateral organizations gradually built, over the course of several years, ten submarine fiber optic internet cables connecting landing-point cities along Africa’s coast with other continents. These cables greatly increased data transmission speeds and capacity on African internet networks and reduced the cost to individuals and firms to access the internet. Hjort and Poulsen use this gradual improvement in connectivity to assess how faster internet access affected jobs in Africa.
To this end, they compare the outcomes of interest – whether an individual has a job and what type of job – of those who were connected to the landing-point cities via terrestrial internet cables to those who were not connected. The usual challenge in this type of exercise is that the decision of which cities to connect may not be random. For example, it may seem sensible to prioritize connecting cities that are growing fast already and where the need for fast internet is greatest. In such a case, the effects of better connectivity on employment may partially reflect a pre-existing trend. To address this challenge, Hjort and Poulsen exploit the fact that submarine cables arrived in different countries at different times. This allows for them to compare connected and unconnected individuals and firms both before and after the submarine cables arrived, and to capture (under plausible assumptions) the causal impact of fast internet.
Using household survey data from 12 African countries with a combined population of roughly half a billion people, the authors document a large positive effect on employment - an increase of 3.1 percent in South Africa and 6.9 - 13.2 percent in other countries in the samples – that is primarily driven by increased employment in higher-skill occupations.
Importantly, their findings suggest that increased employment in connected locations after the submarine cables arrived is not due to job displacement across space, and that a proxy for income rose as a result. In most countries, the increase in skilled employment was biggest for workers with tertiary education, but those who only completed primary or secondary school were more likely to find a job too. Hence, their results suggest that the employment gains from better connectivity were shared widely, by workers of different educational levels. This finding contrasts with work on advanced economies that typically finds that fast internet access disproportionately benefits the most educated. One possible reason for these divergent findings is that African firms are more likely to provide on-the-job training when they gain access to the new technology. But more research is needed to investigate why fast internet appears to benefit a broader segment of workers in Africa than in rich countries.
The authors also provide insight into the mechanisms through which fast internet increased employment. Hjort and Poulsen report that fast internet increased net firm entry, firm productivity, and exporting. Above and beyond facilitating access to fast internet, this study thus suggests that policies that increase African firms’ access to markets – via complementary investments in transport infrastructure, improved logistics, lower trade costs and regional integration – may work in tandem with modern ICT technologies to boost job creation and incomes.
So, the study seems to vindicate technology optimists, at least for now. But unless investments in new, digital technologies are complemented by policies that will improve traditional means of market access in Africa, it is unlikely that these new technologies will realize their full potential.