Economy-wide and Sectoral Impacts on Workers of Brazil’s Internet Rollout

Abstract

We study the effect of Brazil’s staggered Internet rollout between 2000 and 2014 on municipality employment and wages. We use a new annual data-set on Internet availability from the Brazil school census, with the assumption that the share of schools that have Internet access in each municipality reflects general accessibility of Internet connections. We combine these data with Brazil’s rich matched employer–employee survey (RAIS), which contains annual occupation and wage earnings information for all formally employed workers in Brazil across all sectors, including primary, secondary, and tertiary industry groups. We consider both contemporaneous and lagged effects. We find that increased Internet access has no statistically significant net effect on aggregate employment and has a negative effect on average wages, with a reduction in measures of wage dispersion. Brazil’s Internet rollout results in employment shifts from sectors with more limited expansion opportunities (wholesale and retail trade, public administration and largely publicly owned utilities, that jointly comprise almost half of the formal workforce in 2010) to sectors with more output expansion opportunities. Employment effects are positive and most pronounced in manufacturing, transport and storage, finance and insurance, and hospitality industry groups. In the manufacturing sector, Internet access induces positive employment and wage effects in both medium- and high-skill occupations.

Keywords:

• labor demand
• firm growth
• labor markets
• internet
• broadband
• technology

Acknowledgment

This work has benefitted from funding by the World Bank’s Latin America and Caribbean’s Chief Economist Office, under the regional study “Digital technology adoption, skills, productivity and jobs in Latin America”. The authors are grateful to participants for helpful comments and suggestions at the World Bank’s Workshop on Digital Technology Adoption and Jobs in Latin America held on October 31-November 1, 2016. We thank Joao Bastos, Nicolas Pinto and Pui Shen Yoong for excellent research assistance.

Notes

1 The finding by Dutz et al. (2012) that new technology-adopting innovating firms have higher employment growth rates and employ a higher share of unskilled and female workers than non-innovating firms does not establish that as a result of technology adoption the earnings of unskilled and female workers become higher, nor that their income growth is faster than the skilled, nor that some of them are caused to gain higher skills. That paper’s data did not permit these questions to be addressed.

2 In a related study, Song, Price, Guvenen, and Bloom (2016) construct a matched employer–employee data-set for US firms. They show that virtually all of the rise in earnings dispersion among workers is accounted for by increasing dispersion in average wages paid by the employers of these individuals—namely the increase in individual inequality can be accounted for mainly by increases in cross-firm inequality, while the overall earnings dispersion within firms did not increase. Ongoing work of theirs is exploring the extent to which the increase in cross-firm inequality in the US is driven by growing productivity differential across firms versus increased sorting (that firms over time have been employing workers from narrower skills groups, with some firms paying much higher average wages than before because their average worker quality has increased). We intend to replicate the Song et al. approach for Brazil as part of a separate research project.

³ Akerman et al. (2015) exploit rich Norwegian data to answer similar questions to our study. In Norway, a public program with limited funding rolled out broadband access points, and provides plausibly exogenous variation in the availability and adoption of broadband Internet in firms. Their results suggest that broadband Internet improves (worsens) the labor outcomes and productivity of skilled (unskilled) workers. They explore several possible explanations for the skill complementarity of broadband Internet. They find suggestive evidence that broadband adoption in firms complements skilled workers in executing non-routine abstract tasks, and substitutes for unskilled workers in performing routine tasks.