Technology, prosperity and inequality
Digital technologies are ubiquitous and digital dividends are promised everywhere. Up to 20 percent of global economic growth has been a reward for investment in digital technologies in the past two decades, according to last year’s World Development Report from the World Bank.
These benefits are not limited to countries alone, as individuals have also gained. In the UK, our own research on Public Library of Science One (plosone.org) showed that people aged 50 and over are benefiting from online social connections in helping to maintain their cognitive function. But what about in Indonesia? And how fair have the digital dividends been shared, say among the sexes?
Evidence from other developing countries is encouraging. The introduction of cellular phones has led to a dramatic narrowing of price dispersion and waste reduction in coastal fish markets in South India.
Across the globe in Peru, workers gained in higher wages from digital technologies. Smartphones have been essential in eroding information asymmetry that holds disadvantaged groups from reaping the digital dividends.
But recent evidence from Indonesia sounds a warning. Our own research in the Telecommunication Policy journal showed that access to the internet in Indonesia remains unequal. In fact, this inequality has deepened recently along persistent social cleavages, such as gender inequality.
Our latest research of 82,382 working age (15 to 55 years) Indonesians revealed the impact of such inequalities on securing better jobs and higher wages in Indonesia.
Better jobs are found in the formal sector, for instance, as a scientist, away from the informal sector, such as a porridge stallholder.
The formal sector is widely known to be a more rewarding part of the economy and contribute more to public finance through taxes and pension contributions. Thus by increasing the chance of securing formal sector jobs, digital technologies enable workers to be more productive and the government to administer tax more efficiently, altogether enhancing prosperity.
We found, first, as a result of smartphone use, men have a higher probability of securing formal jobs, but improvement is higher among women: 0.29 versus 0.24. These differential effects of technology have rarely been noted: technology narrows the gender divide, by 5 percentage points in this instance.
Second, the effects of smartphone use on wages across the wages of women workers in the formal sector are all positive. More interestingly, among women there is a monotone pattern in these positive effects. So at the low end, the users earned 54 percent higher wages, while around the middle, users earned only 35 percent higher wages.
Because of the monotone pattern, mobile technology does not disperse their wages. In fact, among women, technology enhances wage parity.
However this is not so among men. The effects of smartphone use on men’s wages are also positive along the lines of wage distribution, but the pattern is different. At the lower end, smartphone users earned 18 percent higher wages; at the middle, smartphone use raised wages by 20 percent, a higher increase.
Therefore, mobile technology disperses their wages.
Because men’s wages have been higher than women’s and men also make up the larger chunk of the formal sector, the end result of these patterns is a likely increase in wage inequality. Nevertheless, the fact remains that smartphone use narrowed the gender gap in the formal sector and reduced inequality considerably in women’s wage distribution.
These effects of digital technologies pose stark questions for Indonesia.
What options are there to mitigate the wage inequality effect? The viable option is to equip people in this race between people and technology by broadening the base for higher education and raising its quality.
Indonesia’s enrolment rates in higher education have been slowing down over the last two decades and remain highly unequal, with families at the bottom fifth of income distribution sending only 20 percent of children to college.
This is worsened by the low quality of education in the last two decades. The latest evidence from Trends in Mathematics and Science Study put 90 percent of Indonesian youths in the bottom 5 percent of the world distribution of mathematics and science grades.
Education in Indonesia, therefore, urgently needs improvement to respond to this dynamics of digital technologies. In particular, giving extra support to young girls to enroll in science and mathematics classes is urgently needed.