Questions and answers about coronavirus and the UK economy
Questions and answers about coronavirus and the UK economy

Digital divide

From working on Zoom to watching Netflix, digital technology has been central to many people’s lives during the pandemic. But while shares in tech companies have boomed, others – from small business owners to poorer families – are at risk of being left behind.

Newsletter from 28 May 2021

At the Economics Observatory we continue to survey the evidence to answer important questions about the impact of the past year on our lives and livelihoods. This week, we’ve featured articles focusing on the young, small businesses and the stock market value of technology companies – all of which have been deeply affected by the lockdowns that the pandemic has made necessary.

Generation Covid

Cathy Farmer provides a thought-provoking piece on Generation Covid. Drawing together evidence from a number of articles on children and young people that we’ve published since our launch in early June last year, she explores the impact of long periods of school closures, remote learning and interrupted exams.

The experience of enforced distance learning is likely to affect young people’s development for years to come. For example, during the first lockdown, four in five school kids were reported to have had limited access to a computer or a suitable space to learn, which prevented them from participating fully in class. This will damage their future lives.

In normal times, children from poorer backgrounds are between 18 months and two years behind their wealthier peers by the time of GCSE exams around age 16. Emerging evidence suggests that such inequalities are being exacerbated, with the attainment gap between rich and poor kids estimated to have increased by 36% since the start of the pandemic. Children from the most deprived backgrounds may now be a further two months behind their counterparts.

Cathy’s notes that youngsters aged three to four are likely to have experienced the greatest loss of learning. What’s more, reduced access to playgrounds, sports fields and other school facilities has meant that children’s emotional wellbeing has suffered.

What I found most illuminating in the article comes from the United States in the aftermath of the Spanish flu epidemic a hundred years ago, where Americans born between January and September 1919 turned out to be ‘underachievers’ compared with those born either side of this window.

What can be done for today’s younger generations? Evidence suggests that the ‘scarring’ effects from lost learning can be reduced if children and young people stay in full-time education or training for longer. Policy options for those making the transition from education to work include initiatives such as an employment or training guarantee from government to get Generation Covid into the labour market.

Bursting the bubble

Arguably, a key factor of the success of lockdowns has been the availability of technology for entertainment and maintaining social contact. Without these digital platforms, day-to-day functioning for the past 15 months would have been difficult for many as well as incredibly dull.

This week, many Twitter users were reminded how much technology has permeated our lives, when they found that the latest NHS app update grants access to our personal GP records. A minor craze formed as thousands of users feverishly downloaded the app to read through notes from childhood doctor appointments.

The increasing reliance on tech during the pandemic correlates with a surge in value for US technology companies, as William Quinn and John Turner explain in their Observatory article about tech bubbles.

They note that the value of Facebook, Amazon, Apple, Netflix and Google shares has risen over 100% since the start of last year. Other companies, such as electric car company Tesla, have seen their shares increase by a staggering 700% in the same period.

During such difficult times, it would be nice to assume that this success is a positive sign of economic growth. But William and John urge caution. Their analysis tracks the market trends of previous tech booms to demonstrate why the phenomena are called bubbles: they always burst.

But are bubbles a bad thing and should we be worried about them bursting? Yes and no: while many companies go bust when a bubble bursts (as with the ‘dot-coms’ of the early 2000s – see Figure 1), the rapid development of technology that coincides with such an event can be socially advantageous.

Figure 1: The dot-com bubble

Source: Quinn and Turner, 2020

The authors argue that government should take preventative action to support the economy by ensuring that the banks are stable – before the bubble bursts. But prematurely bursting the bubble, as some economists suggest, may damage opportunities for technological innovation.

Keeping pace

On Wednesday, Manuel Tong provided an update on how small businesses are faring as they switch to online operations. While many have been able to seize the new opportunities that the pivot to digital has brought, others are sticking to traditional in-store sales.

Rediscovering neighbourhood high streets and shopping local has undoubtedly been one of the pluses of the pandemic. A Barclaycard survey released in March this year reported that nearly two-thirds of shoppers are opting to spend locally where they can.

Manuel shows that overall companies are doing more online – but micro-enterprises (businesses with fewer than ten staff members) are falling behind. A lack of digital infrastructure is the main barrier that is stopping these small businesses from entering the online shopping game.

Under two in five UK micro-enterprises have a website and only one in ten were engaged in e-commerce in February 2020. Figure 2 shows how few small businesses are geared up for online sales compared with larger rivals.

Figure 2: Use of websites and e-commerce tools in the UK, by firm size (2019, % of total)

Source: Office for National Statistics; and authors’ elaboration
Note: The first two series consider only firms that report having a website

It is clear that to have a chance of competing online, small businesses need to invest in websites and other online booking services for customers to use. The next round of data will be an important indicator of whether the pandemic has accelerated their investment in this area.

Economic Observatory news

The first edition of ECO, the Economics Observatory magazine, is being printed as I type. If you haven’t had chance yet – make sure you request your free copy here.

Author: Xenia Levantis
Photo by Arthur Lambillotte on Unsplash
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