"The broadband development throughout the 2000s might have cut unemployment by 14%. Our data indicates that one out of six unemployed individuals left the unemployment queue," says Manudeep Bhuller, a professor at the Department of Economics at the University of Oslo (UiO).
He recently authored the study "The Internet, Search Frictions and Aggregate Unemployment" alongside researchers Domenico Ferraro, Andreas Kostøl, and Trond Vigtel.
More efficient
The study reveals that the digitization of job searching had marked effects on labor market dynamics.
"We found that broadband made the recruitment process more efficient for employers. For job seekers, it became easier to find the right job," he reports.
Faster internet proved to be a win-win situation for both employers and applicants. According to Bhuller, the share of companies reporting recruitment difficulties plummeted following the expansion of broadband coverage, and vacancies were staffed more quickly.
"Higher broadband coverage in your area increased the likelihood of finding a job," he clarifies.
A better bargaining position
It appears that job seekers also gained a stronger position in salary negotiations. Bhuller points out that the average starting salary among job seekers with full broadband coverage increased by three to four percent compared to those without any broadband access.
"This supports the notion that faster matching improves the bargaining position for job seekers negotiating a salary with potential employers," says Bhuller.
"Turning down an offer isn't such a big deal when one expects to find another job quite quickly. This compels potential employers to respond by offering higher starting salaries to get you to accept the job offer and end your job search," he explains.
Improved working conditions
The researchers also found indications that the internet enhanced the quality of job conditions. Work relationships that commenced in areas with good broadband coverage lasted longer than those initiated in areas with low coverage, the study indicates.
Bhuller believes this is because job seekers could now search through a more extensive pool of relevant job listings. For employers, it became easier to find the right competency.
"Job seekers found jobs faster and stayed longer in positions where there was broadband access."
The rollout of broadband in Norway occurred in specific locations and gradually, not simultaneously across the country. Before the advent of the internet, job hunting involved searching through newspapers, noticeboards, or Aetat, which was integrated into the NAV reform in the 2000s.
"Altogether, our findings suggest that improved information flow reduced the mismatch between job seekers and employers. Better search technology made the matching process more efficient, thereby helping to lower unemployment," the professor summarizes.
How did researchers find that the internet reduced unemployment?
Bhuller highlights two key aspects of the Norwegian labor market that made this possible. Firstly, they based their findings on a national broadband policy that created significant geographical variation in the infrastructure for broadband internet. This variation in data appears to be random and is not driven by households’ and firms’ underlying need for the internet.
Secondly, the researchers had access to data on companies' job vacancies and business surveys containing qualitative information about recruitment needs. These data sources allowed them to quantify how broadband internet affects the way companies recruit (for example, the use of FINN.no) and the speed with which vacancies are filled. The data also made it possible to distinguish the effect of the internet on firms' recruitment needs from the effect on search efficiency.
To assess how improved internet access impacts job opportunities for job seekers and the effects on starting salaries, they used the labor force survey and employer-employee data from Statistisk Sentralbyrå (Statistics Norway).