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Broadband and the economy
Growth, productivity and employment
This article looks at the economic impact of broadband
and in particular its effect on employment. Two subsequent articles delve more deeply into the effect that
investing in broadband could have in two economically
powerful countries — Germany (see pages 19–22) and
the United States (see pages 23–24)*.
Investment in broadband has soared around the
world. In the United States alone, telecommunications
and cable television companies invested more than USD
97.7 billion in broadband deployment between 2004
and 2010. Since 2009, Chinese companies have invested USD 7.44 billion in broadband, while Malaysian
operators have invested USD 1.6 billion, and there are
many more examples.
Several developed countries are promoting broadband as part of their economic recovery plans, both to
ensure the deployment of these high-cost networks and
to stimulate employment (see Table 1).
Research aimed at generating hard evidence on
the economic impact of broadband is fairly recent.
The evidence gathered so far concerns the contribution of broadband to the growth of gross domestic
product (GDP), employment creation, and productivity gains.
* All three articles are adapted from “The impact of broadband on the economy: Research to date and policy
issues,” Chapter 2 of Trends in Telecommunication Reform 2010–2011: Enabling Tomorrow’s Digital World.
This chapter is authored by Dr Raul L. Katz, Adjunct Professor, Division of Finance and Economics, and Director,
Business Strategy Research, Columbia Institute for Tele-information.
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Broadband and the economy Growth, productivity and employment
Gross domestic product
Broadband has a positive impact on GDP, but research results on the level of growth vary widely.
Constrained by data availability, the analyses have primarily focused on countries of the Organisation for
Economic Co-operation and Development (OECD) —
generally those in Western Europe and North America.
One study finds that the contribution of broadband varies from 0.25 to 1.38 per cent for every 10 per cent increase in penetration. There are many explanations for
this variance. The use of different datasets and different
model specifications is clearly one explanation. Also,
researchers lack a host of useful variables and must
work at high levels of aggregation.
Job creation
Evidence from research and analysis suggests that
broadband does contribute to job creation.
For example, broadband network construction creates direct employment in the jobs necessary for building the facility, such as telecommunication technicians,
construction workers and manufacturers of the required
telecommunication equipment. The creation of direct
Table 1 — Counter-cyclical government programmes
Country
Broadband focus
United States
Launched the USD 7.2 billion Broadband Stimulus program focused on providing service to unserved and
underserved areas
Germany
Government announced a National Broadband Strategy with the objective of having nationwide
broadband access (1 Mbit/s) no later than the end of 2010 and providing 75 per cent of German
households access to a broadband connection of at least 50 Mbit/s by 2014 (estimated investment:
EUR 36 billion)
Sweden
In order to promote broadband, government provides financial incentives to municipalities to fund twothirds (2/3) of total next-generation network (NGN) investment (EUR 864 million)
Portugal
Government announced an EUR 800 million credit line for the roll-out of a next-generation access network
(NGAN); this is part of the first step in a EUR 2.18 billion plan to boost the country’s economy
Ireland
The government will invest EUR 322 million in a National Broadband Scheme aimed at completing country
coverage
Canada
Has relied on four programmes to promote broadband development resulting in an overall investment of
CAN 300 million
Finland
Government funds one-third of the NGN project cost (USD 130.73 million)
New Zealand
Government funds USD 1.03 billion investment to boost fibre over the next five years
Source: Raul L. Katz, Adjunct Professor, Division of Finance and Economics, and Director, Business Strategy Research, Columbia Institute for Teleinformation. “The impact of broadband on the economy: Research to date and policy issues”, Chapter 2 of Trends in Telecommunication Reform
2010–2011: Enabling Tomorrow’s Digital World.
ITU News  5 | 2011  June 2011
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Growth, productivity and employment Broadband and the economy
employment has an impact on indirect employment,
which for example includes jobs related to upstream
buying and selling between the metals and electrical
equipment manufacturing sectors. Finally, household
spending based on the income generated from direct
and indirect employment creates so-called induced
employment.
Four national studies have estimated the impact of
network construction on job creation (see Table 2).
To derive the estimates, the studies used inputoutput tables, which are generally considered to be a
reliable tool for predicting investment impact, provided
that two caveats are borne in mind. First, input-output
matrices are static models reflecting the interrelationships between economic sectors at a certain point in
time. Because those interrelationships may change, the
matrices may lead to an overestimate or underestimate
of the impact of network construction. For example, if
the electronic equipment industry is outsourcing jobs
overseas at a fast pace, the employment impact of
broadband deployment in the country concerned will
decrease over time, and part of the investment will
“leak” overseas. Second, it is critical to break down employment effects at the three levels estimated by the
input-output table in order to gauge the true direct impact of broadband deployment.
Table 2 — Broadband impact on job creation
Country
Authors —
Institution (*)
Objective
United States
Crandall et al.
(2003) — Brookings
Institution
 Creation of approximately
Estimate the employment impact
140 000 jobs per year over ten years
of broadband deployment aimed at
increasing household adoption from
 Total jobs: approximately 1.2 million
60 per cent to 95 per cent, requiring an
(including 546 000 for construction
investment of USD 63.6 billion
and 665 000 indirect)
Atkinson et al. (2009)
— ITIF
Estimate the impact of a USD 10 billion
investment in broadband deployment
 Total jobs: 180 000 (including
64 000 direct and 116 000 indirect and
induced
Switzerland
Katz et al. (2008b)
— CITI
Estimate the impact of deploying a
national broadband network requiring
an investment of CHF 13 billion
 Total jobs: 114 000 over four
years (including 83 000 direct and
31 000 indirect)
United Kingdom
Liebenau et al. (2009)
— LSE
Estimate the impact of investing
USD 7.5 billion to achieve the target of
the “Digital Britain” Plan
 Total jobs: 211 000 (including
76 500 direct and 134 500 indirect and
induced)
(*) Note:
ITIF: Information Technology and Innovation Foundation
CITI: Columbia Institute for Tele-Information
LSE: London School of Economics
Source: Raul L. Katz. “The impact of broadband on the economy: Research to date and policy issues”.
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Results
AFP/Prakash Singh
Productivity
Researchers have also studied the impact of innovation or network effects on employment (categorized
by economists as “network externalities”). Broadband
penetration creates numerous such effects. These range
from new and innovative applications and services, for
example telemedicine, e-commerce, online education
and social networking to: the reduction of excess inventories and optimization of supply chains; business revenue growth; and growth in service industries. Most of
the research regarding this impact has been conducted
using data from the United States.
The impact of broadband on employment creation appears to be positive, with growth varying from
0.2 per cent to 5.32 per cent for every 1 per cent increase in penetration. The spill-over employment effects
of broadband are not uniform across sectors. Some researchers say that the job creation impact of broadband
tends to be concentrated in service industries (such as
financial services, education and health care), although
a positive effect was also seen in manufacturing. One
study found that, for the state of Kentucky, county employment was positively related to broadband adoption
in the construction, information intensive and administrative sectors.
The only sector where a negative relationship was
found with the deployment of broadband was the accommodation and food services industry. This may result from a particularly strong capital-labour substitution
process, whereby productivity gains from broadband
adoption yield reduced employment. It should therefore
be borne in mind that the productivity impact of broadband can cause capital-labour substitution and may, in
some cases, result in a net reduction in employment.
Consumer surplus
Consumer surplus is the amount that consumers
benefit from buying a product for a price that is less
than what they would be willing to pay. Consumer surplus can also be conceptualized in terms of the benefits that broadband represents to the end user. The
variables driving willingness to pay include rapid and
efficient access to information, savings in transport for
conducting transactions, and benefits in health and
entertainment.
ITU News  5 | 2011  June 2011
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Growth, productivity and employment Broadband and the economy
Broadband gaps and
investment requirements
When calculating investment costs of infrastructure, policy-makers have often taken three different
approaches. The first is the conventional engineering
approach, which is based on estimating the coverage
requirements, and then using those estimates to project
the necessary investment to fulfil them. This is the method followed for the investment estimation of Australia’s
National Broadband Plan.
The second approach, labelled “top-down”, begins
by determining the amount of financial resources to be
invested and then seeing how much coverage will be
achieved given those resources. To some degree, this is
the approach that has been followed in the United States
with the Broadband Technology Opportunity Program.
Because this programme was part of a stimulus
package passed by the United States Congress, no specific plans for the construction of broadband networks
were specified in the relevant legislation. Instead, the
funds available for broadband deployment are assigned
through grants, and construction plans defined as the
grants are given out. The third approach, labelled the
“public-policy” framework, defines targets (such as coverage and speeds), but leaves the amount of investment
required unaddressed. This is the approach adopted in
Germany’s National Broadband Plan.
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Weighing the evidence
The evidence is fairly conclusive about the positive
contribution of broadband to GDP growth. While estimates of the degree to which broadband contributes
to economic growth vary from study to study, the discrepancies can be related to different datasets as well as
model specifications.
Broadband has been found to have a positive impact
on productivity within the firm.
Broadband does contribute to employment growth,
both as a direct result of network construction programmes and as a result of spill-over effects on the rest
of the economy.
Finally, beyond economic growth and job creation,
broadband has a positive effect on consumer surplus in
terms of benefits to the end user. These benefits include
efficient access to information, savings in transport, and
benefits in health and entertainment.
Most of the research so far has been conducted in
developed nations, specifically in the United States and
Western Europe. The challenge going forward is to test
for similar effects in developing countries, where data
availability remains a big challenge.