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Why are there so many single mothers?

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Family

Here is a statistic to get your head around: Of the 989 318 babies born last year in South Africa, 61.7% have no information about their father included on their birth certificate. We don’t precisely know why the women who register these babies do not record the father’s information, but it is highly likely that it is because the father would not want to be involved in the raising of the child. They are, in fact, single mothers. This conjecture seems to be supported by other evidence: the HSRC estimates that 60% of South African children have an absent father, and that 40% of mothers are single parents.

Explaining why these mothers are single is not easy. One argument is historical. Throughout the late nineteenth and twentieth centuries, young men would move to the mines, away from structured family life in the countryside. This migrant labour system, it is said, would explain the large number of single women. While plausible theoretically, this explanation neglects a key empirical reality: that the share of single mothers is on the increase. The migrant labour system, owing to the apartheid-era homeland system, was arguably most intense during the twentieth century. And yet this is also the period where the share of single mothers was much lower. The number of migrant workers fell after the dismantling of apartheid settlement policies and, since the 1990s, the decline of the mining industry. Yet it is exactly then that we see a significant rise in the share of single mothers.

If the migrant labour cannot explain the large numbers of single mothers, what else could? Dorrit Posel and Stephanie Rudwick, in a paper published in 2014 by the African Studies Association, show that the Zulu, in particular, have very low marriage rates, as low as 30%. Perhaps, you might argue, it is just that women prefer to be single – that an unmarried life is better than a married one. Well, the evidence does not support this theory. Using survey data, Posel and Rudwick find that this is not a preference: more than 80% of unmarried Zulu women report that they would like to get married (as do the men, incidentally). The reason they attribute to women remaining unmarried despite their wish to be married is lobola, or bride wealth: ‘Our qualitative data demonstrate that frequently the way ilobolo is practiced, and particularly the amount that is requested relative to men’s opportunities in the South African labour market, can contribute to delayed marriage and nonmarriage.’

Both the migrant labour and lobola systems are unique to southern Africa. But the share of single mothers has been rising almost everywhere. In fact, 62% of all births to non-college educated mothers in the United States in 2014 were to unmarried women, very similar to the South African figure. Something more universal seems to be behind these trends.

One possibility is that men’s poor economic conditions contribute to them delaying or eschewing marriage. This is the argument Posel and Rudwick put forward, but one that is also found for the United States, where non-college educated men’s relative incomes have declined over the last three years. A new paper, soon to be published in the Review of Economics and Statistics, tests whether it is, in fact, men’s poverty that prevents them from marrying. The two authors, Melissa Kearney and Riley Wilson, link the fracking of shale gas in the 2000s to marriage rates. The idea is that, if the hypothesis is true that men do not marry because of poor economic conditions, then a fracking boom, which would create more employment and lead to higher incomes, should result in larger numbers of men being willing and able to marry. Kearney and Wilson use a sophisticated statistical analysis to show that 1) there is no impact on higher incomes of non-college educated men on the likelihood of getting married, 2) there is a boost to fertility rates after their income improves, but this increase is similar for both married and unmarried men. They conclude: ‘We find no evidence from the fracking context to support the proposition that as the economic prospects of less educated men improve, couples are more likely to marry before having children.’ In short: it’s not poverty that prevents marriage.

So what is it then? One possibility is that it might be higher female incomes. Not only have women entered the labour market at historic levels since the 1960s, but social transfers to support children has also increased. Both sources of income would give women more agency (or bargaining power) within the household, and reduce the need to live with an income earning partner. While much evidence shows that giving women more household resources improves the outcomes for children, it may have the unintended consequences of absolving men from their child-rearing responsibilities. Thomas Sowell, a US libertarian economist, notes that in 1960, almost a hundred years after the end of slavery in the US, 22% of African Americans grew up in households with only one parent. ‘Thirty years later, after the liberal welfare state, that number had more than tripled. We can speculate as to how much of that 22% was due to slavery, but we know that that tripling was not due to the legacy of slavery. It was due to the legacy of a whole different set of policies.’

But it is also not that easy. The rise in single mothers, although it has increased in the last two decades, began before the child support grant was introduced in South Africa. Pensions may play a role, but it is unclear to what extent they alone can explain the rise in single motherhood.

Family structure is rapidly changing. More children are now growing up with one rather than two parents. Even if the causes remain fuzzy, one thing is certain: the consequences are likely to be profound.

*An edited version of this article originally appeared in the 26 September edition of finweek.

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Written by Johan Fourie

October 26, 2018 at 08:00

What universities can teach us about job incentives (or how to make South African researchers more productive)

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Freedom

Let there be little doubt: academics have the best jobs. When we teach, we get to fill young, smart minds with ideas we care about and believe in. When we undertake research, we get to explore these ideas further, understanding the world and how it works a little bit better. We work in tranquil settings (most of the time), surrounded by like-minded individuals in search of (the) truth, or, for those of us who shy away from people, books that do the same thing. Sometimes we get to travel to nice places to meet more like-minded people and share our ideas. Sometimes we even take sabbaticals, a time to reflect more deeply about the world and how it works without the need to do anything else. And best of all: even if we do not do most of these things, we have job security for life.

Universities are some of the oldest institutions. Although the role of professor has changed somewhat over the centuries – we used to have to earn our income when students paid to enter our classrooms! – the system of academic tenure, where an appointment is permanent and one cannot be fired except under extraordinary circumstances, has been around for more than a century. It is a decidedly different system than the private sector, where the biggest incentive for working hard is to not get fired.

While South African academics get tenure almost immediately after their appointment (it varies, but there is usually a probation period), ‘getting tenure’ is a big thing in the US. The first five years after appointment is a race to publish in top journals. If your tenure evaluation comes up, and you have not published well enough, you won’t get it, and you will have to move somewhere else, or quit academe. Once you get tenure, though, all the incentives to publish are removed; continued research depends entirely on the goals and objectives you set for yourself.

Here are two very different systems that are perfect for analysis. In the first, the incentives are clear: publish or perish. In the second, there are no external incentive like the overt threat to job security. Which of the two systems produce the best results?

Before answering this question, it is perhaps useful to ask why the system of academic tenure was introduced in the first place. There were mainly two reasons. First, tenure provides academic and intellectual freedom to pursue new avenues of inquiry. Second, it provides a sufficient degree of economic security to make the profession attractive. It is the first of these – the unencumbered pursuit of truth – that is still upheld as the indisputable defense for tenure.

Does this defense stand up to empirical support? Three economists, Jonathan Brogaard, Joseph Engelberg and Edward van Wesep, used their own profession to find out. In a paper published in the Winter 2018 issue of the Journal of Economic Perspectives, they measure the research output of almost a thousand academic economists in the five years before tenure and the ten years after. They not only measure the quantity of output, but also the quality. They create two measures: ‘home runs’ are papers that are highly cited (in the top 10% of papers published in the same year) and ‘bombs’ are poor-performing (papers in the bottom 10% of citations that year).

Their results are emphatic: publication and home run rates rise to tenure, peaking in the year a researcher comes up for tenure and a researcher’s first year as tenured faculty, but then fall off a cliff, with publication and home run rates 15% and 35% lower in years 2 to 10 after tenure. Most surprisingly, bomb rates, publishing papers that get very few citations, increase by 35% after tenure.

The authors consider various reasons that might explain this drop in productivity and success. Perhaps this is just a ‘time since PhD’ effect, in that older people are less productive, but the authors find no evidence to support this. Perhaps it is the rise in service, teaching and other nonacademic obligations post-tenure, but that would not explain, for example, why researchers publish more bomb-papers. Perhaps tenure encourages researchers to take bigger risks and branch out into new, explored areas of research. The authors measure this by looking at where the authors publish, and find no difference in the number or uniqueness of co-authors or journals. Perhaps the averages mask elite researchers’ performances. But even if the authors only limit their analysis to the top US universities, the results hold true. Perhaps it takes time for truly novel research to gain traction. But when the authors limit the sample to papers with 20 year lags, the results stay the same.

What emerges from their analysis is that tenure is bad for research productivity. This is not necessarily to say that the tenure-system is bad: had it not been there, the number and quality of PhD students that aim for academic positions would probably have been lower. The possibility of future economic security is the incentive that really matters in drawing the sharpest minds into the field.

But it does suggest two things. On a practical level, giving tenure too early may be a bad thing. The South African system almost assumes tenure at the time of appointment; I don’t know anyone that has not received a permanent appointment for failure to publish. By extending the timing of tenure to at least five years, and making ‘not getting tenure’ a realistic threat, the South African government can get more research for their proverbial buck. At a more general level, the study clearly shows how important incentives are. A world where permanent employment is guaranteed with no performance appraisals is a world where output falls and innovation dies. Even academic economists sometimes need reminding of that.

**An edited version of this article originally appeared in the 21 June edition of finweek.

Written by Johan Fourie

July 19, 2018 at 07:30

The stories we do not tell

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Abel2018b

One of my favourite scenes in Love, Actually is right at the beginning of the movie. The setting is an airport arrivals terminal. As travelers arrive through the gates, they are welcomed by family and friends, smiling, laughing, hugging and kissing. Whenever I have to pick someone up at the international terminal, I do my best to arrive early, and to witness the joy of family and friend reunions.

I would contest that there is another setting where you’re guaranteed to be uplifted. Graduation ceremonies. I was fortunate to attend one of these at the end of March where hundreds of students received their degrees, with thousands of friends and family watching on. Each applause and ululation tells a story, stories often coupled with hardship, sacrifice and perseverance but also with hope, faith and, ultimately, success. There are few things better to see than a father or mother, proud and captivated as their son or daughter walks across the stage, holding back the tears.

Several of my own Economics students graduated too, each with their own stories. Thokozire Gausi graduated with an Honours degree. She is from Malawi and part of a network of students that self-finance their studies in South Africa, often with very little institutional support. Masters-degree graduate Omphile Ramela, who grew up in Soweto, wrote his dissertation while playing professional cricket for the Cape Cobras and, now, the Highveld Lions, and while balancing the demands of a young family. Abel Gwaindepi received his PhD in Economics. He grew up in Zimbabwe, where his father worked in the sugarcane plantations of Anglo-American. Abel has 16 siblings, many of whom he had to support with his meagre scholarships through an undergrad at Fort Hare, a postgraduate at Rhodes and, ultimately, a PhD at Stellenbosch. It is difficult to imagine what that moment of graduation must have felt like for Abel and the Gwaindepi family.

At the same ceremony, both Patrice Motsepe and Jannie Mouton received honorary doctorates, and had the chance to say a few short words. Motsepe noted South Africa’s amazing people, and our duty to ensure that each has the opportunity to live a life of dignity and prosperity. We underestimate our own abilities, Motsepe said, to make a success of South Africa. Mouton highlighted the wealth of opportunities in the country. Focus, he said, on the opportunities instead of being an expert on the problems. ‘Build a business, employ people, pay taxes – contribute.’

Negativity pervades our society, and can be incredibly debilitating. A few minutes on Twitter and you’re bound to find discussions that turn into slurs and slanders which will only end in ignorance and intolerance. But – and this I repeat to myself and my students frequently – Twitter is not the real world. Despite all the negativity that surrounds us, there is one undeniable truth: there has never been a better time to be human than in 2018.

The story we do not tell often enough – and one that still surprises each new cohort of students I teach – is that life is getting better. Yes, we have tremendous challenges in South Africa, in Africa and globally, but we are making good progress to tackling these head-on. Six of the ten fastest growing economies in 2018 will be in Africa. But it is not only incomes that are improving. Steven Pinker, in the first few chapters of his new book, Enlightenment Now, provides a wonderful summary of the trends in health, happiness, and living standards, as well as inequality, the environment, safety and democracy. In each case, the evidence suggests that we live in a much better world than our parents and grandparents.

This good story did not just happen for no reason. It is humankind’s ability to use the resources of nature and transform them into food, clothing and shelter, through ever-increasing understanding of science, our complex technologies and sophisticated institutions, that have allowed us to build a more prosperous world. I really like the way Pinker explains this:

Poverty needs no explanation. In a world governed by entropy and evolution, it is the default state of humankind. Matter does not arrange itself into shelter or clothing, and living things do everything they can to avoid becoming our food. As Adam Smith pointed out, what needs to be explained is wealth. Yet even today, when few people believe that accidents or diseases have perpetrators, discussions of poverty consist mostly of arguments about whom to blame for it.

That our world is getting better should not mean that we can get complacent. As we’ve seen in several countries around the world, places like Syria, Venezuela and Zimbabwe, when things fall apart, living standards quickly revert back to poverty and chaos. As long as we understand that investment in better knowledge about how the world works lies at the heart of our story – in other words, investing in innovation, science and technology – such an outcome is unlikely for South Africa. The worrying thing about our recent budget is that the allocation towards this category will grow at less than the inflation rate. Our politicians seem to not understand that our wealth is dependent not on connections, mineral resources or land. Instead, it is the result of innovation-led improvements in productivity that explains the huge progress of the last two centuries.

Motsepe and Mouton are both correct: we have amazing people and amazing opportunities. But we will only be able to tell a good story if we invest in those amazing people – like Thoko, Omphile and Abel – to use their knowledge and skills to take advantage of those opportunities.

*An edited version of this article originally appeared in the 12 April edition of finweek.

Bad boys, what you gonna do?

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Bad-Boys

A social revolution is underway that most of us are blissfully unaware of. Its causes are fuzzy, but its consequences are likely to be significant: it could radically alter how we work, whom we marry, how many children we have, and, perhaps in the extreme, the likelihood of conflict. This social revolution is a relatively recent phenomenon. We’ve seen it emerge only in the last two decades, but it’s accelerating at a rapid pace. Welcome to the era of the widening gender gap in education.

Girls, nowadays, outperform boys at astonishing rates, both at school and at university. Two new studies, both by economists at Stellenbosch University’s Research in Social Policy unit, attest to this. First, a study by Chris van Wyk, Anderson Gondwe and Pierre de Villiers follow all 2007 Western Cape Grade 6 learners (77,633) until matric in 2013. They find that men are 29% more likely to have dropped out of school by 2013 compared to their female counterparts. These results confirm nationally representative studies of reading and math scores. Hendrik van Broekhuizen and Nic Spaull show that the gender gap in reading at South African primary schools is one of the largest in the world. But it is also in mathematics, a subject where boys traditionally outperformed girls, where the closing and then widening of the gender gap is most evident. Says Van Broekhuizen and Spaull: “In the 2000 and 2007 rounds of SACMEQ, South African grade 6 girls outperformed their male counterparts, but this difference was not statistically significant. However, in the more recently conducted TIMSS-Numeracy assessment of 2015, grade 5 girls outperformed grade 5 boys by a statistically significant margin of 16 points. This was the fourth largest (pro-girl) gender gap in mathematics of the 49 countries that participated.”

SchoolPerformance

Source: Van Broekhuizen and Spaull (2017)

Not only do girls do better than boys at school, women outperform men to an even greater extent at university. Van Broekhuizen and Spaull follow the 2008 matric cohort, and show that, while girls obtained 27% more bachelor passes in matric, more females access university (34% more), and considerably more females complete any undergraduate qualification (56% more) or any undergraduate degree (66% more). These gaps exist for all of South Africa’s race groups, although it is slightly bigger for white and coloured students. The pyramid summarizes the gap at every level: for every 100 females in matric in 2008, there were only 8 females that earned any undergraduate degree by the end of 2014, and only 5 males.

We don’t yet know what explains this gap. One argument, with some supporting evidence, is that women have more traits and behaviours that are favourable to schooling in its current form, also known as non-cognitive skills. These skills include self-control, self-motivation, dependability, sociability, perceptions of self-worth, locus of control, time-preference and delayed gratification. But why exactly these non-cognitive skills have become more valuable in the last two decades is not entirely clear. Others have pointed to technological change, particularly in computer and video games, as an explanation for why men are performing worse. But that does not explain gender differences at very young ages.

What is more interesting, though, is to think through the likely consequences. The most obvious is the effect on the job market. Graduates have a much lower unemployment rate (5%) compared to those without any tertiary qualification (33%) in South Africa. If more women have degrees, women are likely to have significant lower unemployment rates than men. And because the best students in almost all subject fields are now women, they are likely to find the best jobs, and move up the job ladder quicker.

We know that men have historically held the majority of high-ranking positions in the workplace, and this outcome can do a lot to balance things out. But it is also important that we think carefully through the full range of consequences. People prefer to match on education, meaning that women prefer men with a similar level of education, and vice versa. What does the gender-unbalanced pool of graduates mean for finding your soulmate? If women become the main (or only) breadwinners, how will that affect family planning? Women already face a more difficult trade-off than men between having to balance a family and career – will this cause fertility rates to fall further, especially for those at the upper-end of the income distribution where the gender gap is most pronounced?

And what of the men? Will they be happy to step in and take up more of the family responsibilities? In a world that increasingly rewards human capital, a large pool of unskilled men will find no outlet for their only productive resource: manual labour. If these men, without proper interventions, become more indolent and isolated, what are the likely political and social consequences? It is not surprising that the political extremes are often dominated by men. Men already outnumber women in all major crime categories. If unchecked, violence and conflict, at the household, community and international level, will in all likelihood increase.

It is natural to ask what can be done about this. Those who argue that the cause for the gender gap is the sudden increase in rewards for non-cognitive abilities would argue that the schooling system can do more to nurture these traits in men. Others would argue that the technological change that make men less productive – like video games – should be taxed.

Others, again, will say that it is pointless to intervene – why should we care about men when women have been suppressed for centuries, and many remain the victims of abuse and dominance? I would argue that that is exactly why we should care about the rising gender gap in education: if we don’t, the consequences are likely to be dire, for men and women.

Written by Johan Fourie

March 26, 2018 at 08:30

The formula for success

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The world of work is changing. Skills that were valuable only a decade or two ago seem less valuable nowadays, displaced by newer trends and technologies. Every few weeks a news article report on the threat of automation, and how it will destroy millions of jobs, including yours. A YouTube video of a robot jumping over obstacles confirms that the inevitable is only a few months away.

The answer, many seem to think, is to become like computers. Students, in South Africa and elsewhere, are encouraged to pursue STEM – science, technology, engineering and mathematics – careers. Humanities degrees or those in the social sciences, in contrast, are often considered less prestigious. We know that the best-paying jobs are still those where a decent amount of math is required. In South Africa, this is of particular concern, as the gender and racial composition of those enrolling for STEM degrees differ significantly from those enrolling for degrees in the humanities, exacerbating inequality.

Occupations

But the story is more complicated than that. A new paper by David Deming, published in the Quarterly Journal of Economics (QJE), suggests that, at least in the United States, STEM graduates are not doing very well. In fact, between 2000 and 2012, STEM jobs shrank by 0.1 percentage points, after growing by 1.3 percentage points in the previous two decades. In contrast, all other ‘cognitive occupations’, jobs like managers, teachers, nurses, physicians, lawyers and economists , grew by 2.9 percentage points between 2000 and 2012, faster than the 2 percentage points in the previous decade. The figure below demonstrates this clearly: only 36% of STEM occupational categories had positive growth, compared to 85% of other professional occupations.

The reason for this, Deming argues, is that managers, teachers and physicians all require significant interpersonal skills. And because of the technological change – the same technological change we all fear! – these social skills are increasingly in demand. Deming explains: ‘The skills and tasks that cannot be substituted away by automation are generally complemented by it, and social interaction has, at least so far, proven difficult to automate. Our ability to read and react to others is based on tacit knowledge, and computers are still very poor substitutes for tasks where programmers don’t know “the rules”.’

Using a wide variety of sources, Deming finds that jobs that require high levels of both cognitive and social skills have fared particularly well, while high math, low social skill jobs (including many STEM occupations) have fared especially poorly. ‘Social skills were a much stronger predictor of employment and wages for young adults age 25 to 33 in the mid-2000s, compared to the 1980s and the 1990s.’ There is a revolution in the job market underway that no-one is talking about.

CyanideHappiness

Where do these social skills come from? Deming speculates that much of it is formed during early childhood development, although this is difficult to prove. The latest research that have followed children from a young age into adulthood have found strong correlations between kids’ socioemotional skills in kindergarten and adult outcomes such as employment and earnings.

The demand for social skills may also have implications for gender imbalances in the workplace. Women often choose careers that require more social interaction. If these jobs are in greater demand, with faster earnings increases, the gender gap may close quicker.

The optimism about the closing of the gender gap, though, is pegged by another study published in the same journal, by authors Matthew Wiswall and Basit Zafar. They test a group of New York University students about their preferences for flexible hours when they enter the job market, and find that students are willing to give up 2.8% of their annual earnings for a job with a centage point lower probability of job dismissal. They also find that students are willing to give up 5.1% of their salary to have a job that offers the option of working part-time hours. But there is a large gender difference: female students have a much higher average preference for flexible hours – 7.3% – compared to men – 1.1%. What the authors then do is to track the students after they graduate, and record their actual earnings four years later. Wiswall and Zafar find that those students with a high preference for work flexibility do actually end up in occupations with greater flexibility. But because women already prefer more flexible work even before they’ve started working, they also tend to earn less once they’ve entered the labour market, choosing jobs with lower pay and greater flexibility. At least a quarter of the gender gap in the labour market, the authors argue, can be explained by just these differences in preference.

These studies show how our social skills and preferences affect our labour market outcomes. Policies that aim to address labour market distortions, like race or gender gaps, should know that the roots of the problem may lie in preferences and skills moulded in the early years of development.

That is not to say that nothing can be done: for those going to university this year, perhaps one thing to keep in mind is that your future earnings depend not only on attending math class, but also on developing your social skills. Here’s one formula to remember: Math + beer = success.

>>> An edited version of this article originally appeared in the 1 February 2018 edition of finweek.

Written by Johan Fourie

March 13, 2018 at 08:00

The compelling case for technological optimism

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PortableComputers

In September last year, I visited the Computer History Museum in Mountain View, California. The museum is dedicated to preserving and presenting all aspects of the computer revolution, from its roots in the twentieth century to self-driving cars today. What is remarkable is to observe, while walking through the more than 90000 objects on display, the profound change in technology over the last three decades. The mobile computing display, I thought, summarised this change best, showing the first laptop computers of the 1980s (see image above) to a modern-day iPhone. But what also became clear from the exhibitions was that those ‘in the know’ at the start of the revolution were right about the transformational impact of computers, but almost certainly wrong about the way it would affect us.

We are now at the cusp of another revolution. Artificial intelligence, led by remarkable innovations in machine learning technology, is making rapid progress. It is already all around us. The image-recognition software of Facebook, the voice recognition of Apple’s Siri and, probably most ambitiously, the self-driving ability of Tesla’s electric cars all rely on machine learning. And computer scientists are finding more applications every day, from financial markets – Michael Jordaan recently announced a machine learning unit trust – to court judgements – a team of economists and computer scientists have shown that the quality of New York verdicts can be significantly improved with machine learning technology.  Ask any technology optimist, and they will tell you the next few years will see the release of new applications that we currently cannot even imagine.

But there is a paradox. Just as machine learning technology is taking off, a new NBER Working Paper by three economists, Erik Brynjolfsson, Chad Syverson and Daniel Rock affiliated to MIT and Chicago, show something peculiar: a decline in labour productivity over the last decade. Across both the developed and developing world, growth in labour productivity, meaning the amount of output per worker, is falling. Whereas one would expect that rapid improvements in technology would boost total factor productivity, boosting investment and raising the ability of workers to build more stuff faster, we observe slower growth, and in some countries even stagnation.

TrendGrowthRates

This has led some to be more pessimistic about the prospects of artificial intelligence, and in technological innovation more generally. Robert Gordon, in his ‘The Rise and Fall of American Growth’, argue that, despite an upward shift in productivity between 1995 and 2004, American productivity is on a long-run decline. Other notable economists, including Nicholas Bloom and William Nordhaus, are somewhat pessimistic about the ability of long-run productivity growth to return to earlier levels. Even the Congressional Budget Office in the US has reduced its 110-year labour productivity forecast, from 1.8 to 1.5%. On 10 years, that is equivalent to a decline of $600 billion in 2017.

How is it possible, to paraphrase Robert Solow in 1987, that we see machine learning applications everywhere but in the productivity statistics? The simplest explanation, of course, is that our optimism is misplaced. Has Siri or Facebook’s image recognition software really made us that more productive? Some technologies never live up to the hype. Peter Thiel famously quipped: ‘We wanted flying cars, instead we got 140 characters’.

Brynjolfsson and co-authors, though, make a compelling case for technological optimism, offering three reasons for why ‘even a modest number of currently existing technologies could combine to substantially raise productivity growth and societal welfare’. One reason for the apparent paradox, the authors argue, is the mismeasurement of output and productivity. The slowdown in productivity of productivity in the last decade may simply be an illusion, as most new technologies – think of Google Maps’ accuracy in estimating our arrival time – involve no monetary cost. Even though these ‘free’ technologies significantly improve our living standards, they are not picked up by traditional estimates of GDP and productivity. A second reason is that the benefits of the AI revolution are concentrated, with little improvement in productivity for the median worker. Google (now Alphabet), Apple, and Facebook have seen their market share increase rapidly in comparison to other large industries. Where AI was adopted outside ICT, these were often in zero-sum industries, like finance or advertising. A third, and perhaps most likely, reason is that it takes a considerable time to be able to sufficiently harness new technologies. This is especially true, the authors argue, ‘for those major new technologies that ultimately have an important effect on aggregate statistics and welfare’, also known as general purpose technologies (GPT).

There are two reasons why it takes long for GPTs to be seen in the statistics. It takes time to build up the stock necessary to have an impact on the aggregate statistics. While mobile phones are everywhere, the applications that benefit from machine learning are still only a small part of our daily lives. Second, it takes time to identify the complementary technologies and make these investments. ‘While the fundamental importance of the core invention and its potential for society might be clearly recognizable at the outset, the myriad necessary co-inventions, obstacles and adjustments needed along the way await discovery over time, and the required path may be lengthy and arduous. Never mistake a clear view for a short distance.’

As Brynjolfsson and friends argue, even if we do not see AI technology in the productivity statistics yet, it is too early to be pessimistic. The high valuations of AI companies suggest that investors believe there is real value in those companies, and it is likely that the effects on living standards may be even larger than the benefits that investors hope to capture.

Machine learning technology, in particular, will shape our lives in many ways. But much like those looking towards the future in the early 1990s and wondering how computers may affect our lives, we have little idea of the applications and complementary innovations that will determine the Googles and Facebooks of the next decade. Let the Machine (Learning) Age begin!

An edited version of this article originally appeared in the 30 November 2017 edition of finweek.

Why #DataMustFall

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ZimBoth the Independent Communications Authority of South Africa (Icasa) and the Competition Commission are concerned about South Africa’s high data costs. It is about time. Of the 48 African countries ranked by ResearchICTAfrica.net for the first quarter of 2017, South Africa was the 22nd most expensive in which to buy 1GB data. All of South Africa’s main competitors on the continent, including Egypt (1st), Ghana (4th), Nigeria (8th) and Kenya (15th) ranked higher. Our poorest neighbour – Mozambique – ranked second, with US$ 2.27 for 1GB in contrast to our US$7.49.

Consumers have known this for some time. Last year, radio personality Thabo “Tbo Touch” Molefe started a Twitter campaign – #DataMustFall – that went viral. He was subsequently invited to address the parliamentary Portfolio Committee on Telecommunications and Postal Services about the high cost of broadband in South Africa. Said Molefe at the time: “The power of data gives access to education, mentorship, skills training, financial assistance, job searching and recruit.”

Molefe is correct. There is now ample evidence globally to show that internet access at affordable prices is correlated to better job market opportunities. This is especially true in South Africa, where the employment rate is seven percentage points higher in areas connected to the internet than those with no connection. The problem is that economists have struggled to show that this relationship is causal: areas with internet connectivity usually have all the other amenities that are associated with better job market prospects. It then becomes an empirical question of how to separate the effect of internet connectivity from things like education, infrastructure and wealth that also affect job market prospects?

A new NBER Working Paper by Jonas Hjort of Columbia University and Jonas Poulson of Harvard University offers an answer. The two authors exploit the gradual arrival of 10 submarine Internet cables from Europe in cities on Africa’s coast in the late 2000s and early 2010s to identify whether the higher speeds and cheaper data costs created new jobs. First, they show that the arrival of the cables did, in fact, increase average internet speeds and the expansion of the network. They then compare the changes in employment patterns in cities and towns with a bigger versus a smaller increase in access to fast Internet. “In each of three different datasets that together cover 12 African countries with a combined population of roughly half a billion people, we find a significant relative increase—of 4.2 to 10 percent—in the employment rate in connected areas when fast Internet becomes available.” Just as Molefe said: faster and cheaper internet creates jobs!

As with any economic change, there are both winners and losers. Hjort and Poulson show that the faster, cheaper internet reduces employment in unskilled jobs, but “enables a bigger increase in employment in higher-skill occupations”. In other words, just as automation does in the developed world, faster internet in Africa results in a change in the type of skills required. One might expect the consequence to be deeper levels of inequality. Not true, says the authors, especially in South Africa. Faster, cheaper internet enables South African workers of low and intermediate educational attainment “to shift into higher-skill jobs to a greater extent than highly educated workers”. The net effect is that fast internet lowers employment inequality across the educational attainment range in South Africa.

So what types of jobs were created by the arrival of the submarine cables? The authors find that “new and new types” of jobs were created via the “extensive margin” (meaning: new users) and “intensive margin” (meaning: different use of the internet by existing users). Using detailed firm level data, they show that, in South Africa, new firms are established, notably in sectors that benefit from ICT. In Ethiopia, by contrast, existing firms improve their productivity. In other African countries like Ghana, Kenya and Nigeria, firms with access to the faster, cheaper internet export much more, perhaps, the authors suggest, because “website communication with clients become easier”.

Technology is not just a threat to job creation – it is also an opportunity. But as the #DataMustFall movement has shown, fast internet access remains a mirage for most South Africans. That is hopefully changing. Non-profits, like Project Isizwe, want to facilitate the roll-out of free WiFi in public spaces in low income communities, as it is already doing in Tshwane. Similar initiatives are following in South Africa’s other metros. Both Google and Facebook are designing new technologies that could revolutionise connectivity for in rural areas.

Consumers are rightfully angry about the high cost of data in South Africa. Yet it is local entrepreneurs and their employees that should be most upset. As Hjort and Paulson show, cheap data will create more firms and more, better-paying jobs. “Employment responses of the magnitude we document indicate that building fast Internet infrastructure may be among the currently feasible policy options with the greatest employment-creating potential in Africa.”

Fast and cheap internet is probably the simplest way to alleviate South Africa’s high unemployment conundrum. Policy-makers should take note.

*An edited version of this first appeared in Finweek magazine of 24 August 2017.

Written by Johan Fourie

August 30, 2017 at 10:56