The Impact of IT on the Standard of Living and Worker Productivity

Ethics in Information Technology Chapter 8: The Impact of Information Technology on Productivity and Quality of Life The Impact of IT on the Standard of Living and Worker Productivity The standard of living varies greatly among groups within a country as well as from nation to nation. The most widely used measurement of the material standard of living is gross domestic product (GDP) per capita. National GDP represents the total annual output of a nation’s economy. Overall, industrialized nations tend to have a higher standard of living than developing countries. In the United States, as in most developed countries, the standard of living has been improving over time. However, its rate of change varies as a result of business cycles that affect prices, wages, employment levels, and the production of goods and services. Major disasters—such as earthquakes, hurricanes, tsunamis, and war—can negatively impact the standard of living. The worst economic downturn in U.S. history occurred during the Great Depression, when the GDP declined by about 50 percent from 1929 to 1932; by 1932, the unemployment rate had reached 25 percent. By way of comparison, during the latest recession in the United States (which began in 2007), the GDP growth rate declined by 6.8 percent during the fourth quarter of 2008 and the U.S. unemployment rate hit a peak of 10.2 percent in October 2009. IT Investment and Productivity Productivity is defined as the amount of output produced per unit of input, and it is measured in many different ways. For example, productivity in a factory might be measured by the number of labor hours it takes to produce one item, while productivity in a service sector company might be measured by the annual revenue an employee generates divided by the employee’s annual salary. Most countries have been able to produce more goods and services over time—not through a proportional increase in input but rather by making production more efficient. These gains in productivity have led to increases in the GDP-based standard of living because the average hour of labor produced more goods and services. The Bureau of Labor Statistics tracks U.S. productivity on a quarterly basis. In the United States, labor productivity growth has averaged about 2 percent per year for the past century, meaning that living standards have doubled about every 36 years. Figure shows the annual change in U.S. nonfarm labor productivity since 1947. The increase in productivity averaged 2.8 percent per year from 1947 to 1973 as modern management techniques and automated technology made workers far more productive. Productivity dropped off in the mid-1970s, but rose again in the early years of the twenty-first century, only to drop dramatically from 2007 to 2012, a period of time corresponding to the deepest recession in the United States since the Great Depression. Innovation is a key factor in productivity improvement, and IT has played an important role in enabling innovation. Progressive management teams use IT, as well as other new technology and capital investment, to implement innovations in products, processes, and services. In the early days of IT in the 1960s, productivity improvements were easy to measure. For example, midsized companies often had a dozen or more accountants focused solely on payroll-related accounting. When businesses implemented automated payroll systems, fewer accounting employees were needed. The productivity gains from such IT investments were obvious. FIGURE ABOVE U.S. nonfarm labor productivity, 1947–2012 Today, organizations are trying to further improve IT systems and business processes that have already gone through several rounds of improvement. Organizations are also adding new IT capabilities to help workers who already have an assortment of personal productivity applications on their desktop computers, laptops, and smartphones, such as the BlackBerry®, Droid®, and iPhone®. Instead of eliminating workers, IT enhancements are saving workers small amounts of time each day. Whether these saved minutes actually result in improved worker productivity is a matter for debate. Many analysts argue that workers merely use the extra time to do some small task they didn’t have time to do before, such as respond to email they would have otherwise ignored. These minor gains make it harder to quantify the benefits of today’s IT investments on worker productivity. The relationship between investment in information technology and U.S. productivity growth is more complex than you might think. Consider the following facts: • The rate of productivity from 1990 to 2000 of 2.1 percent is only slightly higher than the long-term U.S. rate of 2 percent and not nearly as high as it was during the 26 years following World War II. So, although the increase in productivity was welcome, it is not statistically significant. • Labor productivity in the United States increased despite a reduced level of investment in IT from 2000 to 2007. If there were a simple, direct relationship, the productivity rate should have decreased. One possible explanation for the previous points is that there is a lag time between the application of innovative IT solutions and the capture of significant productivity gains. IT can enhance productivity in fundamental ways by allowing firms to make radical changes in work processes, but such major changes can take years to complete because firms must make substantial complementary investments in retraining, reorganizing, changing reward systems, and the like. Furthermore, the effort to make such a conversion can divert resources from normal activities, which can actually reduce productivity—at least temporarily. For example, researchers examined data from 527 large U.S. firms from 1987 to 1994 and found that it can take five to seven years for IT investment to result in a significant increase in productivity. Another explanation for the complex relationship between IT investment and U.S. productivity growth lies in the fact that many other factors influence worker productivity rates besides IT—the overall economic climate (expansion/contraction); the flexibility of the labor market; the actions taken by private industry, various government entities, and the financial sector; and changes in supply and demand. Table summarizes fundamental ways in which companies can try directly to increase productivity. TABLE ABOVE Fundamental drivers for productivity performance Source Line: Course Technology/Cengage Learning. The following list summarizes additional factors that can affect national productivity rates: • Labor productivity growth rates differ according to where a country is in the business cycle—expansion or contraction. Times of expansion enable firms to gain full advantage of economies of scale and full production. Times of contraction present fewer investment opportunities. • Outsourcing can skew productivity if the contracting firms have different productivity rates than the outsourcing firms. • Regulations make it easier for companies in the United States to hire and fire workers and to start and end business activities compared with many other industrialized nations. This flexibility makes it easier for markets to relocate workers to more productive firms and sectors. • More competitive markets for goods and services can provide greater incentives for technological innovation and adoption as firms strive to keep ahead of competitors. • In today’s service-based economy, it is difficult to measure the real output of such services as accounting, customer service, and consulting. • IT investments don’t always yield tangible results, such as cost savings and reduced head count; instead, many produce intangible benefits, such as improved quality, reliability, and service. As you can see, it is difficult to quantify how much the use of IT has contributed to worker productivity. Ultimately, however, the issue is academic. There is no way to compare organizations that don’t use IT with those that do, because there is no such thing as a noncomputerized airline, financial institution, manufacturer, or retailer. Businesspeople analyze the expected return on investment to choose which IT option to implement, but at this point, trying to measure its precise impact on worker productivity is like trying to measure the impact of telephones or electricity. Telework Telework (also known as telecommuting) is a work arrangement in which an employee works away from the office—at home, at a client’s office, in a hotel—literally, anywhere. In telework, an employee uses various forms of electronic communication, including texting, email, audio and videoconferencing, and online chat. Teleworkers access the Internet via smartphones, tablets, laptops, and similar devices to retrieve computer files; log on to software applications; access corporate databases; and communicate with fellow employees, managers, customers, and suppliers. The goal of telework is to allow employees to be effective and productive from wherever they are. According to the U.S. Bureau of Labor Statistics, 21 percent of employed Americans worked at least some hours at home each week during 2010. Another study found that between 20 and 30 percent of Americans worked from home at least one day a week during 2011. Factors that have increased the prevalence of telework include advances in technology that enable people to communicate and access the Internet from almost anywhere, the increasing number of broadband connections in homes and retail locations, high levels of traffic congestion, rising gasoline prices, and growing concern over the effects of automobile CO 2 emissions. Another key factor is that increasingly scarce and highly trained workers frequently demand more flexible work arrangements, including flex hours and the ability to occasionally work from home. A number of states and the federal government have passed laws to encourage telework. For example, Virginia set a goal in 2008 of having 20 percent of eligible state workers teleworking by 2010. The state met the goal and now has over 8,500 workers telecommuting out of 25,000 eligible employees (34 percent). The Telework Improvement Act of 2010 makes all federal employees eligible to telework one day per week (unless their manager determines they are ineligible for telework). About 21 percent of eligible federal employees telework. However, not all organizations are fully supportive of telework. Several organizations, including Bank of America, Best Buy, and Yahoo!, have recently cut back their telework program for employees for a variety of reasons, including the need to cut costs, improve efficiency, and encourage greater collaboration among employees. Organizations should prepare guidelines and policies to define the types of positions and workers who represent ideal telework opportunities. Clear guidelines must be set for how and when work will be given to and collected from teleworkers. If there are certain hours during which the teleworker must be available, these too must be defined. Employee work expectations and performance criteria must also be delineated. A Sensis® Consumer Report found that while the majority of teleworkers (62 percent) were positive about teleworking, nearly 25 percent felt teleworking had no real impact on their lives, and 13 percent of teleworkers reported a negative impact. The negative feelings were primarily because workers felt that teleworking had not really improved their productivity. In addition, many teleworkers felt that there was increased pressure to work outside the normal business hours so that they now worked longer hours, thus taking time away from their families. Another recent study concluded that telework has led to an expansion of work hours beyond the standard workweek and has placed additional demands on salaried workers. Some positions—such as management positions or those in which face-to-face communication with other employees or customers is required—may not be well suited for telework. In addition, some individuals are not good candidates for teleworking. Telework opportunities need to be weighed based on the characteristics of the individual as well as the requirements of the position. Table list some of the advantages and disadvantages of telework from the perspectives of employees and organizations, respectively. TABLE BELOW Advantages/disadvantages of teleworking for employees Source Line: Course Technology/Cengage Learning. TABLE BELOW Advantages/disadvantages of teleworking for organizations Source Line: Course Technology/Cengage Learning. The Digital Divide When people talk about standard of living, they are often referring to a level of material comfort measured by the goods, services, and luxuries available to a person, group, or nation—factors beyond the GDP-based measurement of standard of living. Some of these indicators include the following: • Average number of calories consumed per person per day • Availability of clean drinking water • Average life expectancy • Literacy rate • Availability of basic freedoms • Number of people per doctor • Infant mortality rate • Crime rate • Rate of home ownership • Availability of educational opportunities Another indicator of standard of living is the availability of information and communications technology. The digital divide is a term used to describe the gulf between those who do and those who don’t have access to modern information and communications technology, such as cell phones, smartphones, personal computers, and the Internet. There are roughly 2.4 billion Internet users worldwide, but the worldwide distribution of Internet users varies greatly from region to region. The digital divide exists from country to country (see Table) and even within countries—among age groups, economic classes, and people who live in cities versus those in rural areas. For example, in India, while 20 percent of urban Indians are connected to the Internet, only 3 percent of rural Indians are connected. In the United States, Hispanics and African Americans, adults living in poor households, and senior citizens are least likely to have Internet access. TABLE BELOW High-low Internet penetration by country within region Source Line: Internet World Stats, www.internetworldstats.com/stats.htm. Many people believe that the digital divide must be bridged for a number of reasons. Clearly, health, crime, and other emergencies could be resolved more quickly if a person in trouble had easy access to a communications network. Access to IT and communications technology can also greatly enhance learning and provide a wealth of educational and economic opportunities as well as influence cultural, social, and political conditions. Much of the vital information people need to manage their career, retirement, health, and safety is increasingly provided by the Internet. The E-Rate program discussed in the opening vignette was designed to help eliminate the digital divide within the United States. This program and others designed to increase the availability of low-cost computers, cell phones, and smartphones are discussed in the following sections. E-Rate Program The Education Rate (E-Rate) program was created through the Telecommunications Act of 1996. The full name of the program is The Schools and Libraries Program of the Universal Service Fund. E-Rate helps schools and libraries obtain broadband Internet services to advance the availability of educational and informational resources. The program provides cost discounts that range from 20 percent to 90 percent for eligible telecommunications services, depending on location (urban or rural) and economic need. (Economic need is determined by percentage of students eligible for participation in the National School Lunch Program.) E-Rate reimburses telecommunications, Internet access, and internal connections providers for discounts on eligible services provided to schools and libraries. Schools and libraries must apply for the discounts, and the USAC works with the service providers to make sure that the discounts are passed along to program participants. While the program has steadily increased the number of schools and libraries connected to the Internet, there have been problems with fraud, as detailed in the opening vignette. In addition, the benefits delivered by the program have been called into question. A University of Chicago study examined the impact of the E-Rate program in California and found that the number of students in poor schools going online had indeed increased dramatically. However, the study found no evidence that the program had any effect on students’ performance on any of the six subjects (math, reading, science, language, spelling, and social studies) covered in the Stanford Achievement Test. Researchers concluded that either the schools did not know how to make effective use of the Internet or that Internet use was simply not a productive way to boost test scores. Despite the fraud and lack of evidence of a positive impact on student test scores, the $2.3 billion per year E-Rate program continues today. Low-Cost Computers As noted above, it is estimated that as of June 2012, nearly 2.4 billion people worldwide have access to the Internet.34 Although that number is impressive, it still leaves nearly 5 billion people (72 percent of the world’s population) unconnected. What most of those 5 billion people have in common is low income. Increasing the availability of low-cost computers can help reduce the digital divide. One Laptop per Child (OLPC) The nonprofit organization One Laptop per Child (OLPC) has a goal of providing children around the world with low-cost laptop computers to aid in their education. As of 2013, the program has worked with federal, state, and local governments to help distribute over 2.4 million low-cost computers to students in 40 countries. The first version of its laptop, the OLPC XO, was made available to thirdworld countries in 2007 and came with a hand crank for generating power in places where electricity is not readily available. It was distributed at a cost of around $200. The current version of the OLPC is the XO-4 (see Figure), which was designed to require just 1 watt of electricity per hour and sell for $206, with a minimum purchase of 10,000 units. The machine comes with up to an 8 GB hard drive and 1.2 GHz processor. The computer runs a Linux-based operating system and comes with a suite of 300 or so learning applications called Sugar. The computer can connect to the Internet via wireless or satellite communications. FIGURE ABOVE The OLPC XO-3 tablet computer Credit: Courtesy of fuseproject. Nepal is one of the poorest countries in the world, with an average annual per capita income of about $475 (USD) and an unemployment rate of 46 percent. Much of its rural population has limited access to even the most basic of social services. The OLPC program in Nepal started in 2008 as a small pilot project in two schools. Within three years, it expanded to 32 schools with a total enrollment of 3,300 students in grades 2 to 6. The goal of the program in Nepal is to improve the quality of education and the access to instructional materials. Some 180 teachers are learning how to integrate the technology into their teaching practices and developing curriculum-based computer educational activities. The OLPC program in Nepal has shown that technology-based education can be successfully introduced into rural schools using prepared local teachers already in the school system. Classmate+ In 2006, Intel introduced a low-cost laptop called the Classmate PC. The first generation of this notebook computer cost under $400 and was designed for use in kindergarten through high school classrooms in developing countries. The computer began shipping in early 2007 to 25 countries, including Brazil, Chile, Nigeria, China, India, and Vietnam. Since then, Intel and Lenovo have partnered to introduce the Classmate+ laptop, targeted for sale in bulk quantities to educational institutions and agencies in third-world countries. Some Classmate models are the traditional clamshell style, while others are convertible tablet-style machines. Intel does not actually build the machine but instead provides the basic design used by various manufacturers around the world. Over 4 million Classmate computers have been deployed globally. The Classmate has a 10-inch screen, runs the Windows 7 or Linux operating system, comes with 1 or 2 GB of RAM, has a built-in camera, and has wireless capability. The laptop comes equipped with the Intel Learning Series Software Suite of educational software. Raspberry Pi The Raspberry Pi is a small (about the size of a credit card), inexpensive ($25– $35) computer developed by the Raspberry Pi Foundation, a United Kingdom charity. This stripped-down computer comes with either 256 MB or 512 MB of RAM, a 700 MHz processor, one or two USB ports, and an Ethernet port—but no case and no monitor. The computer, which runs the Linux operating system, was designed to teach computer programming to young children, and as an alternative, low-cost desktop computer replacement for those willing to try new technology.45,46 Although the price of the Pi certainly makes it attractive, it is not clear that this device has the necessary ruggedness, portability, and functionality to meet the educational computing needs of schoolchildren. The quantity of these computers to be manufactured remains to be seen. Mobile Phone: The Tool to Bridge the Digital Divide? Some industry observers identify the increasing use of cell phones as an important first step in bridging the digital divide in many countries. The rapid and widespread use of cell phones has resulted in an increased investment in the infrastructure required to support wireless communications. In addition, as cell phone use has spread, financial institutions and other organizations have built applications capable of accepting text-based input to process user transactions and store cash or credits on users’ phones. In almost all countries, many more people have access to cell phones than they do computers. Cell phones have several advantages over personal computers, including the following: • Cell phones come in a wide range of capabilities and costs, but are cheaper than personal computers. Some users simply purchase a SIM card (essentially a memory chip that holds the owner’s account information, including his or her phone number and contacts information), and then swap SIM cards in and out of a shared cell phone to lower the costs even further. • Cell phones are more portable and convenient than the smallest laptop computer. • Cell phones come with an extended battery life (much longer than any personal computer battery), which makes the cell phone more reliable in regions where access to electricity is inadequate or nonexistent. • There is almost no learning curve required to master the use of a cell phone. • Basic cell phones require no costly or burdensome applications that must be loaded and updated. • There are essentially no technical-support challenges to overcome when using a cell phone. For many people who can afford it, the next step in bridging the digital divide is the acquisition of a smartphone—complete with an operating system capable of running applications and providing access to the Internet. As the cost of the technology and monthly usage fees decrease, even more people will be able to make this upgrade, and when they do, they will gain access to thousands of applications and Web sites that they can use for business, educational, and personal purposes. When IT is available to everyone—regardless of economic status, geographic location, language, or social status—it can enhance the sharing of ideas, culture, and knowledge. How much will the benefits of IT raise the standard of living in underdeveloped countries? Could the end of the digital divide change the way people think about themselves in relation to the rest of the world? Could such enlightenment, coupled with a better standard of living, contribute to a reduction in violence, poverty, poor health, and even terrorism?