The Impact of the Internet on Worker Flows

The Internet has increased the ease and availability of employment information, but a question remains as to how, and if, this increased information has changed employment outcomes. This research examines the impact of the Internet on worker flows and job matching. While previous research found a negative impact of the Internet on unemployment duration, this research demonstrates the importance of including flows between employment to employment in an analysis of the impact of Internet. Over 80 percent of online job seekers are employed at the time of their job seeking and Internet users, conditional on observables, are more likely to change jobs and are less likely to transition to unemployment. Furthermore, those who use the Internet have greater wage growth when changing jobs. I use several approaches to attempt to isolate an exogenous source of Internet use in order to isolate the causal relationship between the Internet, job change, and wage growth. The first is to examine state-level aggregate data. As states’ Internet penetration rates rose differentially through the 1990’s so did employer-to-employer worker flows with a 10 percentage point rise in state-level internet penetration leading to a 5% increase in employer-to-employer flows. While it can be difficult to disentangle whether changes in state labor markets reflect Internet usage or drive Internet adoption, I find a useful instrument that isolates the causal mechanism: the Internet has diffused in much the same way as past innovations, and hence average state ownership rates of household appliances in 1960 describe Internet adoption patterns over the past decade.