The Internet Changes the Labor Market

Summary of working paper 9254
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The increased demand for those working with the Internet, and computers more broadly, has boosted both their wages and the hours they work.

The computerization of business and telecommunications has led to much talk about the "new economy" and, possibly, a related surge in productivity. A less recognized development is that information technology, particularly the Internet, is changing the labor market and labor organizations in important ways.

For one thing, the increased demand for those working with the Internet, and computers more broadly, has boosted both their wages and the hours they work, NBER Research Associate Richard Freeman finds. Further, the low cost of transmitting information over the Internet is shifting job search and recruitment activities to the Web, he adds. Third, the ease of communicating and interacting over the Internet has led unions to experiment with web-based modes of servicing members, perhaps thereby improving union democracy and reversing the long-run decline in membership, and carrying their message to the wider public.

"The new technologies, together with other important changes, such as the continued increase in the educational attainment of the work force, shift of employment to service sectors, and increased employment of women, are producing a labor market that differs greatly from the industrial labor market that characterized the 20th century," Freeman writes in The Labor Market in the New Information Economy (NBER Working Paper No. 9254).

Those working with computers or the Internet tend to work 5 to 6 percent more hours than other workers, Freeman finds. Those who work with the Internet work 4 percent more hours than those who use computers but not the Internet. The actual time worked may be even higher, Freeman notes, since the workers surveyed presumably did not add time worked at home, checking email from there, sending business messages, or working at home with a computer at night or on weekends. On the other side, workers in their offices may spend time surfing the Internet for personal non-work reasons. Various surveys suggest they spend two or three hours per week at work visiting finance, news, and even adult content pages on the Web. Yet it is plausible, Freeman writes, that personal use of the Internet at the workplace simply substitutes for other forms of leisure on the job, such as a coffee break or lunchtime, or other "downtime."

Freeman notes that despite the rise of computer-based work at home, much important information -- business, scientific, or technological -- apparently still requires human interaction to be effectively transmitted. So location does matter. Nonetheless, the Internet could produce subtle changes in the coordination and timing of business activity beyond the "death of distance," Freeman suggests. Firms may divide a work project so that people in one time zone begin the project, then pass the product to people in another zone, who do the same.

Freeman points out that one of the true successes of the world have been Internet recruitment firms. Half of unemployed Americans with home access to the Web used it for job search in 2001 and 15 percent of the employed with home access also looked for a new position. That's especially true of younger workers. Altogether, 8 percent of the entire labor force (with or without home access) reported looking for jobs on the Web. The rapid expansion of job search and recruitment on the Web, Freeman explains, is because the Internet is the lowest cost way for workers to get information about jobs being offered and for employers seeking workers to get information about persons seeking work. Firms can post advertisements for jobs on the Web for roughly a tenth the price of buying a want ad in newspaper classifieds and obtain rapid responses through on-line applications. Workers can search a wide variety of jobs, apply relatively easily for those jobs without leaving their home or office, and be notified by e-mail by an interested firm. Job sites, as well as offering reduced transaction costs, should offer potentially speedier clearing of the job market and better matching between workers and vacancies.

Further, Freeman writes, the Internet can increase worker and activist solidarity, creating a new internationalism by linking unions and sympathizers around the world with instant labor news and instant communications. And, unions can use the Internet to present their case to members, business, and the general public without going through standard media channels and thus can pressure firms to acquiesce to union demands. Unions already have used the Internet to organize wider protests to help workers in disputes in particular localities.

Unions also can organize workers on-line and develop a virtual presence, even at companies where the union lacks sufficient membership to gain recognition. The United Food and Commercial Workers union, for instance, has a site for Wal-Mart workers to keep up with its unionization campaign. The Web could also create a greater opportunity for union democracy by allowing rank-and-file members to participate more fully in decisions and give dissidents greater ability to make their case against incumbent leadership. Some unions have organized Internet voting on particular issues, but most use it to communicate with workers rather than to involve them in decision-making. Freeman expects unions to attempt to develop the right mix of services and activities on the Web to help them survive and be relevant.

-- David R. Francis