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Global Development Institute

A double-edged sword: technology, prosperity and inequality

Gindo Tampubolon and Maria Fajarini

Abstract

Digital technologies promise myriad dividends for development while evidently widening divides across gender and space. This contrast deserves critical scrutiny based on national samples to prevent either complacency or despondency. We began with a theory of technology-driven wage inequality in developing countries. Then two hypotheses were tested: (1) smartphone use (to seek information on the web) increases probability of securing formal sector jobs which are more productive, thus increasing prosperity; and (2) across the formal sector, such use delivers larger gains at higher quantiles, thus deepening wage inequality. To test the first hypothesis, a discrete factor estimator was applied, since both treatment and outcome are binary indicators; and since the wage gains are uneven, instrumental variable quantile estimator was used to test the second. Using a national socioeconomic survey in 2014 matched with a separate village census in the same year, we studied 82,283 working age Indonesians (15 to 55 years), their jobs and wages. This revealed transformations in the labour market driven by mobile technology: smartphone use narrowed the gender gap in formal employment by five percentage points. In contrast, wage inequality was widened with a thicker wedge driven by men's higher wage. The complex effects of digital technologies on labour market outcomes demand a strengthening of analogue bases of digital technologies, for example gender parity in educational attainment and in internet access to ensure the digital dividends are widely shared. We close by discussing implications for global development, harnessing technology in responding to widening global inequality.

Keywords

Smartphone, formal job, wages, inequality, skill, technological change, discrete factor, model, instrumental variable quantile estimator

 

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