Digital Impact Group: Persistent Digital Divide Among Low-Income Individuals

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By Greg Goldman, CEO, Digital Impact Group; and Lee Huang, Econsult Corporation

PHILADELPHIA, Penn., March 8, 2010 – There is a persistent digital divide among low-income individuals, households, and communities throughout the US, as it relates to “always on” high-speed Internet access in homes.  Over 100 million individuals representing over 40 million households do not use broadband because they cannot access it, cannot afford it, do not know how to use it, or are not aware of its benefits.

It is widely understood that there are significant costs to non-adopters, but economic analysis of these costs was not available before.  We have attempted to quantify those costs—to those without computers and internet access themselves, as well as to those who are networked, the economy, and society as a whole.

The conclusion of our study is that, summing the conservative, low-end estimates of 11 categories of economic impact yields an aggregate estimate of the current costs of digital exclusion at over $55 billion per year.

Furthermore, over time, the costs of digital exclusion are likely to increase, as technological advances in key sectors enhance the efficiencies enjoyed by digitally included populations and therefore magnify the costliness of being excluded.

A recent report issued by the NTIA found that while “virtually all demographic groups have increased their adoption of broadband services at home over time . . . the data also reveal that demographic disparities among groups have persisted over time.” The NTIA report demonstrates that “persons with low incomes, seniors, minorities, the less-educated, non-family households, and the non-employed tend to lag behind other groups in home broadband use.”

In particular, the report found that only 46 percent of non-Hispanic Blacks and only 40 percent of Hispanics have access to broadband at home. Only 29 percent of families earning less than $15,000 a year have broadband access at home, a rate that improves only modestly to 35 percent for families earning between $15,000 and $25,000 annually.  Older Americans also lag significantly in adopting broadband service, with only 46 percent of those over the age of 55 using broadband at home.  In total, 36 percent of all US households still lack broadband access.

The persistent lack of broadband access for many Americans is costly for individuals, families, communities and the nation.  Many aspects of day-to-day life, including work, shopping, education, accessing medical care and entertainment now require broadband access, and large segments of the populations are simply cut off from taking advantage of the resulting efficiencies.

Today the lack of broadband access results in increased costs for a wide variety of reasons.  From the perspective of individuals and families, lack of broadband access:

1. Limits access to goods and services, resulting in higher costs for households;
2. Reduces access to education and inhibits learning among children;
3. Increases job search costs, which lowers both earnings and the chance of finding a job;
4. Reduces access to health information; and
5. Increases the costs associated with household financial management.

Beyond the impact on individuals, Governmental entities incur higher costs in communicating with populations without broadband access since communications and transactions must occur via paper, mail, telephone or face-to-face contact.  Digital exclusion also increases the cost of civic engagement, which reduces participation in the political process.

The lack of broadband access also constrains local, regional, and national economic performance.  Communities with limited broadband penetration rates have less productive households and bear higher costs in providing public services, placing them at a competitive disadvantage.  At the national level, lack of broadband access lowers national production and wealth for at least five reasons:

1. Higher job search costs lower the number of people fully employed;
2. Higher job search costs result in sub-optimal job matching and lower earnings;
3. Higher costs to employers seeking access to the labor market will limit employment;
4. Lower educational attainment will lower production compared to what could be obtained; and
5. Higher costs for private businesses providing financial, real estate and other services, with large segments cut off from these services entirely.

On the positive side, remedying digital exclusion will yield:

1. Personal Gains.  Digital access results in individuals and groups directly gaining new economic, social and educational resources.

2. Reduction in Opportunity Costs.  A particular form of direct gain to individuals and groups comes from reductions in opportunity costs.  An activity made more efficient by online access is usually  still available to those who are not online, but in vastly inferior forms: an entrepreneur who can access the Internet only from the local library when researching market opportunities, a resident who must wait in line to renew his or her driver’s license,, and a shopper who must settle for a more limited selection of goods.

3. Positive Externalities.  The term “externalities” describes a situation in which the full costs or benefits of an action are not borne by those taking the action.   Universal broadband access would result in many positive externalities: new connectivity helps educate people, connects them more efficiently to employment opportunities and business information, and provides avenues to organize themselves around civic issues and to hold their governments accountable.

4. Positive Network Effects.  A particular type of externality is known as “network effects.”  Metcalfe’s Law states that the value of a telecommunications network is proportional to the square of the number of connected users of the system.  Thus when a person is added to the network, all network members are positively affected.  An important enhancement to personal and commercial wellbeing that is provided by the Internet is the ability to easily and efficiently connect to a broader network of users.  Remedying digital exclusion adds to that network of users, with important implications for fields such as health care, disaster and emergency response, energy management, and transportation.

Prior research on Digital Impact Group (DIG) has demonstrated that comprehensive interventions can be highly successful in bringing vulnerable populations online, with impact on families in the areas of education, employment, health, and more.

As a result of this study, we now know that investing in such programs will have major economic impact on families, communities, government, commerce and the nation as a whole.