UNIVERSITÄT POTSDAM - Prof. Dr. Paul JJ Welfens

good one-half percentage point emerges for Germany as a consequence of flat rate pricing
– with an implied price reduction of 20%.
Even today, the employment growth in the information industry contributes
greatly to overall employment growth. In all, the number of employed persons rose by
128,000 between 1997 and 1998. This is equivalent to an increase of approximately
0.4 %. Alone in the Hardware, Software and Services subsector, the number of employed
persons grew by 27,900, an increase of approximately 2.9 % (see Table 10).
This sector, with a 2.7 % share of the total labor force in 1997 and a 2.8 % share in
1998, supplied 21.8 % of Germany's total employment growth. Its contribution to employment
becomes even more pronounced when we take a look at its Software and IT
Services subsector. Here, the number of employed persons rose by 36,000 from 1997 to
1998. At shares of 0.65 % and 0.75 % of the total labor force for the years 1997 and
1998, respectively, this subsector was responsible for 28.1 % of the total growth in employment.
It also contributed significantly to the rise in employed persons from 1998 to
1999. While Hardware, Software and Services together register a growth of employed
persons of “only” approximately 4 %, the figure is approximately 11 % for just the
Software and IT Services subsector.
Again assuming a proportionality – between Internet use and employment – a
20% reduction in Internet use costs (using the “At-Home Internet Access” indicator)
would mean an increase in employed persons in the Software and IT Services subsector
of roughly 18,500 beyond the expected growth. If one uses the broader indicator for
Internet access, which is probably the more relevant one in this case, the number of
employed persons added in this subsector would be roughly 45,000. Assuming this
proportionality for the information industry as a whole, there would be 108,000 newly
employed persons using the “At-Home Internet Access” indicator, and 263,000 additional
employed persons using the broader Internet access indicator – all in addition to
the expected trend-driven growth. In a more drastic scenario assuming a 50 % reduction
in Internet use costs – which is, however, subject to a considerably higher uncertainty,
as it entails shifting to the edge of the available sample of observations – then
the consequences of the narrow and wide indicator definitions switch. While the
broader indicator for Internet access now shows additional employment of 360,000
persons, the “At-Home Internet Access” indicator would lead to roughly 430,000 additional
employed persons in the information industry. This result also implies that a
drastic price reduction would decrease the validity of the broader indicator for private
Internet use and increase the importance of “At-Home Internet Access”. Thus, the present
conclusion is absolutely in agreement with intuitive expectations. In the face of
unemployment figures near four million at the turn of the year 1999/2000, the possibility
of creating 100,000 to 400,000 additional jobs through more liberal price-setting
policies in the Internet sector should be seen as momentous for Germany in any case.
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