New Study, Sure to be Interpreted as Evidence Quality Broadband Reduces Unemployment, Does Not Say That

Does high-quality broadband “cause” economic growth, job creation, lower unemployment, higher house prices or other positive outcomes? Actually, we do not know, even if we mostly assume those outcomes are produced by high-quality broadband. Consider one new study.

“We find that high speed broadband has significant effects on county-level unemployment rates,” say researchers Bento Lobo, Tennessee at Chattanooga, Department of Finance and Economics; Rafayet Alam, University of Tennessee at Chattanooga, Department of Finance and Economics and Brian Whitacre Oklahoma State University, Department of Agricultural Economics.

“We also find measurable benefits to early adoption of high speed broadband,” they say. The issue is what “effects” actually means. “Causation” is not what the researchers mean. “Positive association between broadband speed and labor market outcomes does not indicate causality,” they say.

Even if the study will mostly be interpreted as providing proof that high-quality broadband leads to, produces or causes higher economic growth or lower unemployment, that is not what the researchers say.

In a separate new study, The Rewards of Municipal Broadband: An Econometric Analysis of the Labor Market, Phoenix Center Chief Economist Dr. George Ford and Phoenix Center Adjunct Fellow Professor R. Alan Seals (Auburn University) use data obtained from the U.S. Census Bureau’s American Community Survey to quantify the economic impact, if any, of the county-wide government-owned network (GON) in Chattanooga, Tenn. on labor market outcomes.

“Across a variety of empirical models, we find no payoffs in the labor market from the city’s broadband investments,” they conclude. “We find almost no statistically significant effects for a wide range of important labor market variables, with the possible exception of a reduction in labor force participation.”

The study looked at private-sector labor force participation, employment status, wages, information technology employment, self-employment, and business income, “all of which appear unaffected by the GON,” the researchers say.

That is not to deny correlation between broadband status and jobs, unemployment, productivity,  rates of economic activity or growth, broadband and home prices, which most studies might find. The problem is that lots of things are correlated, without being causal. Sometimes even correlation is hard to find.

Areas of higher-value housing tend to have the fastest broadband. Those areas also tend to have high education attainment rates, lower unemployment, higher incomes and so forth.

Correlation is not causation. And indeed, in Tennessee, the researchers found correlations. “The data suggest that high speed counties were characterized by roughly one percent lower unemployment rates in 2016 than low speed counties on average.”

“It is unclear whether there is a linear relationship between broadband speeds and economic impact,” they also say.

That wording in their study on broadband speed and unemployment is important. It is one thing to note a correlation between the presence of broadband and economic metrics. It is quite difficult to determine a causal relationship, even if virtually everyone “thinks” broadband helps, in that regard.

They note that “unemployment rates are about 0.26 percentage points lower in counties with high speeds compared to counties with low speeds.” The obvious problem is that areas of higher economic activity and growth are almost certainly also going to have lower unemployment rates.

Also, places of high economic activity and growth, which also tend to produce higher incomes (not to mention population), are likely also associated with higher rates of broadband deployment and access speeds.

Again, correlation is not really the issue. Causation is the missing link.