1. society
2. work
3. unemployment

Job creation arising from ICT investment and
use
David Hughes, Intercai Mondiale
ICT = I C Tomorrow
28th October 2013
Session 2: The Development of ICT for Job Creation
1
How ICT contributes to the economy
• Production of ICT goods and services, which directly contributes to the aggregate
value added generated in an economy
• Increase in total factor productivity (TFP) of production in the ICT sector, which
contributes to aggregate TFP growth in an economy
• Use of ICT capital as an input in the production of other goods and services
• Contribution to economy-wide TFP from increase in productivity in non-ICT
producing sectors induced by the production and use of ICT (spillover effects)
–
In the past, this contribution has not been found to be significant
Source: The Impact of ICT on Growth in Transition Economies, Marcin
Piatkowski, Warsaw 2004
2
ICT investment and use generates growth
Impact of “broadband” on GDP
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
Range of estimates of the effect of a 10%
increase in broadband penetration
1.38
1.12
0.81
0.73
1.21
0.77
0.6
0.43
Fixed
telephony
Mobile
telephony
high income
Internet
GDP growth (%)
GDP growth (%)
Effect of a 10% increase in service penetration on
GDP growth in high and low income economies
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
1.38
1.1
0.7
1.1
0.26
1.21
0.6
0.24
Broadband
low income
Source: Qiang and Rossotto for the World Bank,
quoted in Broadband Strategies Handbook, ITU;
Based on 2000 – 2006 data
Source: Broadband Strategies Handbook, ITU
List of sources of impact of broadband investment: Economic Impact of Broadband
Infrastructure and Services - Global Review of Evidence WSIS Lab Team
3
1.5
0.9
High
Low
Various sources report that investment in ICT may result
in growth of jobs
Impact of “digitalisation” on GDP and jobs, 2011
North America
Western Europe
Eastern Europe
Middle East & North Africa
Latin America & Caribbean
CIS
East Asia & Pacific
Africa
South Asia
World
Jobs created per
GDP impact
US$1M in GDP
GDP growth per
(US$billion) No. jobs created growth
job created
25.3
167,650
6.63
150,910
31.5
213,578
6.78
147,487
7.0
159,015
22.72
44,021
16.5
377,772
22.90
43,677
27.0
636,737
23.58
42,404
11.8
340,820
28.88
34,622
55.8
2,370,241
42.48
23,542
8.3
618,699
74.54
13,415
9.4
1,117,753
118.91
8,410
192.6
6,002,265
31.16
32,088
Source: Booz & Co, WEF GITR 2013
• Digitalisation: A measure of ubiquitous access to affordable, reliable, fast and
usable digital services by a skilled population
• In North America, this estimation indicates a contribution to GDP growth of 0.1%
and to jobs growth of 0.05%
• The greater jobs growth in emerging markets was considered to be as a result of
large populations, offshoring ,and possibly a greater impact on the economy
4
GDP growth from ICT may increase employment, wages
and salaries, or it may increase profit
USA: Employee compensation as %age of GDP
UK: employee compensation as %age of GDP
44%
Source: Federal Bank of St Louis
5
54%
Source: The Great Wages Grab, Trades Union
Congress, UK
•
GDP (income method) = employee compensation + operating surplus (~profit) +
taxes less subsidies on production and imports
•
Employee compensation (wages and salaries, etc) contribute 42% to 56% of GDP
•
GDP growth from ICT may affect employee compensation or operating surplus
•
An increase in employee compensation may result in higher salaries or higher
employment or both
•
There is no clear relationship between ICT production, investment and use, and
growth in employment
ICT investment and use results in job losses and job gains
Impact of broadband investment and use, EU27, 2006
Jobs lost, 000 / year, EU27
Productivity
improvement in the
business services
sector
-103
-725
Jobs gained, 000 / year, EU27
-491
Productivity
improvement in other
sectors
435
549
440
New activity in the
business services
sector
New activity in other
sectors
Displacement
(outsourcing)
-1,319,000 jobs/year
Displacement
(outsourcing)
+1,424,000 jobs/year,
net 105,000 jobs / year = 0.06% increase in workforce
Source: The Impact of Broadband on Growth and Productivity conducted on behalf of the
European Commission by Micus Management Consulting GmbH
• Jobs lost through productivity improvements including through outsourcing
• Net gain in jobs through new business activities
• Overall annual employment gain of 0.05% and GDP gain of 0.71% (82.4Bn Euros)
• GDP growth is higher in advanced knowledge societies in Europe and lower in less
developed economies
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ICT contribution to GDP, labour productivity and employment
Impact of ICT investment and use, EU15, USA, transition countries, 1995 - 2001
GDP growth
ICT capital contribution
ICT sector contribution to TFP
Total ICT contribution
ICT contribution as %age of GDP growth
EU15
2.42
0.46
0.27
0.73
30%
USA
3.52
0.82
0.44
1.26
36%
Bulgaria Czech Rep Hungary
0.51
2.27
3.64
0.45
0.73
0.71
0
0.13
0.58
0.45
0.86
1.29
88%
38%
35%
Growth in GDP per person employed
ICT capital contribution
ICT sector contribution to TFP
Total ICT contribution
ICT contribution as %age
1.13
0.41
0.27
0.68
60%
2.21
0.74
0.44
1.18
53%
1.91
0.49
0
0.49
26%
2.8
0.75
0.13
0.88
31%
Growth in persons employed
Overall growth in employment
ICT contribution
ICT contribution as %age
1.28
0.05
3.9%
1.28
0.08
6.2%
-1.37
-0.04
2.9%
-0.52
-0.02
3.8%
Poland
4.81
0.55
0.14
0.69
14%
Romania
0.79
0.22
0
0.22
28%
Russia
1.12
0.09
0
0.09
8%
Slovakia Slovenia
4.1
4.1
0.55
0.54
0.09
0.64
0.54
16%
13%
3.25
0.71
0.58
1.29
40%
4.45
0.58
0.14
0.72
16%
3.55
0.26
0
0.26
7%
1.66
0.13
0
0.13
8%
4.76
0.57
0.09
0.66
14%
3.75
0.54
0
0.54
14%
0.38
0.00
0.0%
0.34
-0.03
-8.6%
-2.67
-0.04
1.5%
-0.53
-0.04
7.5%
-0.63
-0.02
3.2%
0.34
0.00
0.0%
Source: The Impact of ICT on Growth in Transition Economies, Marcin Piatkowski, Warsaw 2004;
Source of growth in persons employed: Intercai, based on Piatkowski
• TFP = Total Factor Productivity
• ICT contributed to GDP growth in all economies, but increased productivity most in the most
developed economies
• ICT increased employment only in the most developed economies
• ICT increased employment by a small amount in comparison with GDP growth
7
ICT producing and using sectors contribution to GDP growth
Contribution of ICT producing and using sectors
to GDP growth, EU15, 1995 - 2001
ICT producing sector
19%
45%
Contribution of ICT producing and using sectors
to GDP growth, USA, 1995 - 2001
24%
27%
ICT using industries
35%
Non ICT using
industries
ICT using industries
49%
GDP growth = 3.73% pa
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ICT producing sector
Non ICT using
industries
ICT producing and using sectors contribution to increased
labour productivity
Contribution of ICT producing and using sectors
to labour productivity, EU15, 1995 - 2001
Contribution of ICT producing and using sectors
to labour productivity, USA, 1995 - 2001
3%
22%
ICT producing sector
ICT producing sector
43%
45%
ICT using industries
53%
ICT using industries
34%
Non ICT using
industries
Growth in GDP per person employed = 1.39% pa
9
Non ICT using
industries
Growth in GDP per person employed = 2.19% pa
Critical factors in stimulating ICT production and use
• Possibility of deep structural reforms to
the economy
• Quality of institutions and regulations
• Trade openness
• Direct inward foreign investment
• Macroeconomic stability
• Vigorous labour and product market
competition
• Human capital investment
10
New Economy Indicators
• Quality of regulations and law enforcement
• Infrastructure
• Trade openness
• Financial system
• R&D spending
• Human capital investment
• Labour marker flexibility
• Product market competition
• Openness to foreign investment
• Macroeconomic stability
Regulate to encourage innovation
Product market regulation
11
•
Public ownership itself does not inhibit ICT adoption
•
Overall product market regulation explains 12% of cross-country differences in ICT investment
•
Possible reasons
o
Low barriers to entry create an incentive to invest in ICT to increase productivity and retain market share
o
Product range expansion, service customisation, better customer response
o
Improvement in production efficiency
o
Competition reduces ICT costs thereby promoting diffusion
Source: OECD Economic Studies No43, 2006/2 Product market regulation and productivity convergence
Special taxes on telecommunications conflict with ICT
development policies
Impact on GDP growth of a special tax on broadband
Penetration (no tax)
30%
Tax rate
20%
Price elasticity of demand
High estimate
-1.2
Low estimate
-0.6
Penetration (with tax)
22.8%
26.4%
GDP multiplier
0.85
Impact on GDP growth
-0.61%
-0.31%
Example: special tax in Jordan levied after a 16% sales tax:
Data services: 8%
Mobile services: 24%
Source: GLOBAL INDUSTRY LEADERS’ FORUM 2011 Draft Discussion Paper:
Taxing telecommunications/ICT services: an overview, ITU
12
Promoting ICT development
•
Make country market attractive to ICT businesses
–
Complementary tax and other policies
–
Regulate to encourage innovation
»
Eservices enabling law and regulation
»
Fair and equitable institutions
»
Aggressive management of inefficient markets
–
•
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Don’t try to protect incumbents’ entrenched positions
Government stimulation of ICT markets
–
egovernment
–
Use the ICT sector’s commercial products and services
–
Lead from the front – research, best practice implementations, impact assessment
–
Publicise results
–
Promote coordination of the ICT sectors
–
Coordinate availability of investment capital
–
Education
Conclusions
• ICT investment and use results in growth in GDP and increased labour productivity
• Job growth arises directly and indirectly as a result of investment in ICT
• Net growth in jobs in the medium term varies
–
Jobs are lost as a result of improvements in labour productivity
–
Jobs are gained as a result of improved competitiveness and from
innovation
• ICT investment therefore changes the competitive positioning of nations and
regions resulting in job migration
• ICT policy implementation models use a wide variety of instruments that help in
the development of ICT sectors and resultant jobs growth
• Tax and regulatory instruments must be included in these implementation models
to ensure that they do not act as inhibitors to ICT investment and innovation
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