Capitalisn’t: The New Economics of Industrial Policy
Harvard’s Dani Rodrik visits the podcast to discuss changing attitudes toward globalization.
Capitalisn’t: The New Economics of Industrial Policy
The COVID-19 pandemic has spurred a surge in remote work, and even after the pandemic is over, about one-fifth of paid workdays will take place at home, according to Chicago Booth’s Steven J. Davis and his coauthors, Mexico Autonomous Institute of Technology’s Jose Maria Barrero and Stanford’s Nicholas Bloom. But some in the workforce lack a key element in their work-from-home arrangements: reliable, high-speed internet access. In research for the Aspen Economic Strategy Group, Barrero, Bloom, and Davis find that were everyone in the United States to have such access, it would boost labor productivity by 1.1 percent—resulting in a present-value benefit of $4 trillion. How that benefit compares to the costs, Davis says, remains an unanswered question.
Narrator: About one-fifth of paid workdays will take place at home in the postpandemic economy, according to research by Chicago Booth’s Steven Davis and his coauthors. At the beginning of the pandemic, the researchers surveyed the newly remote workforce, collecting data on their home-work life, as well as what influenced their productivity in their new environment. Unsurprisingly, not having access to high-speed internet greatly decreased productivity at home.
Steven J. Davis: When people have lousy home internet access, it cuts into their productivity at home. But we found for about three-quarters of people that work from home, the internet access that they have at home is perfectly adequate for their needs. But then there’s another quarter who either have internet connection speeds that are too slow to make video conferencing work very well, or they have internet connections that are unreliable, prone to breaking, interrupted here and there.
Narrator: And some of those folks said they experienced large productivity consequences as a result of their subpar internet access. The researchers then ran a study to see what would happen if everyone working from home had access to high-speed internet.
Steven J. Davis: If we went from where we are today to everybody has perfectly reliable, high-speed home internet access, we get a 1.1 percent boost in labor productivity across the economy as a whole. And you say, OK, 1.1 percent. What does that mean? Well, if you translate it into GDP numbers, it’s about $160 billion per year. And then if you say, OK, well, what does this mean in present value terms? Because we get this flow benefit year after year. And if you discount that at a 4 percent rate, you get a number like $4 trillion. So $4 trillion was sort of our bottom-line, present-value assessment of how much we’d gain if we moved everybody to full-speed, reliable internet service at home.
Narrator: Given the huge gains to GDP, should lawmakers make it their priority to guarantee high-speed internet access across the US?
Steven J. Davis: If you think about the policy issues related to home internet access, there’s the cost side and the benefit side. We’ve done what we think is a pretty good job of assessing the benefit side, but we don’t speak to the cost side.
Cost side’s tricky for a few reasons. So there’s really three things on the cost or supply side. There’s the physical infrastructure piece, which is what people think about most. There’s how do we design competition in the marketplace to maximize consumer benefits? And is there a need to subsidize internet access for some people because they don’t fully internalize the benefits that they generate in the system as a whole when they sign up?
I think what our paper does is say, we need a careful analysis of those issues as well, before we can assess whether we should move all the way to everybody has high-speed internet access, halfway, three-quarters of the way. We don’t answer that question, but I think we put the question squarely on the table.
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