Developing a Methodology for Costing the Impact of Digital Exclusion

Dr Leandro Carrera and Chris GilsonLSE Public Policy Group

Structure of this presentation

1. Identifying the digitally excluded2. Estimating the ‘benefits foregone’

of digital exclusion3. What would tackling Digital

Exclusion cost the government?4. Applying a cost-benefit analysis to

assess the feasibility of tackling digital exclusion

5. Conclusions

1. Identifying the digitally excluded

Identifying clusters

The study team started with a principal component analysis of OxIS’s survey data (Helsper and Margetts) to identify key groups or ‘clusters’ of the population which suffer from digital exclusion

From these data the main groups identified were: those who are economically disadvantaged

(unemployed and low income ) those who are disadvantaged in relation to age and

mobility those who are educationally disadvantaged

Estimating the size of the clusters

For the three groups, our estimates show that around 6m people are digitally excluded

Other studies, have shown that the scale of digital and social exclusion is around 4-6m (CLG, Digital Inclusion Team)

Thus, our estimates are representative of the scale of digital exclusion suffered by under-privileged groups

Total number in group (millions)

Number not using internet (million)

Percentage not using internet

Low income unemployed 2.2 1.2 53

Elderly and disabled 2.8 2.3 80

Educationally Disadvantaged

(Employed/Basic Education)

8.6 2.5 29

Total 13.6 5.9 43

2. Estimating the ‘benefits foregone’ of digital exclusion

Conservative estimate of total benefits forgone for citizens who are digitally excluded

   Estimated total per

person per year (£)

Estimated total Benefit

(£ million)

Low income unemployed

Time lag in finding a job from unemployment – missing web search  441 310

Probability of missing JSA payments due to lack of information 64 13

Missed savings from being unable to compare prices online 283 135

Elderly and disabled

Missed savings from being unable to compare prices online 283  358

Greater costs incurred through potentially unnecessary GP visits 2.5 5

Delay in receiving attendance allowance through lack of information 112  48

Educationally Disadvantaged

(Employed/Basic Education)

Missing out on opportunities for promotion and for better paid jobs through lack of 'digital' skills

995 1,855

Missing out on the positive pay and promotion consequences through e-learning

832 559

Missed savings from being unable to compare prices online 283 542

Total    3,824

Estimated benefits forgone for government

  InitiativeTotal Benefit

(£ million)

Low Income UnemployedReduced admin costs through

placing JSA online9

Elderly disabledSavings to NHS for reduced number of potentially unneeded elderly GP

appointments12

Educationally Disadvantaged

Reduced costs through providing outreach online rather than in person

(e.g. JCP has 9,300 personal advisors that meet with customers)

18

Total   39

Estimated benefits forgone for the economy

  InitiativeTotal Benefit

(£ million)

Low Income Unemployed

Estimated output gains through increased employment and productivity

310

Elderly

Helping informal carers to stay in work through telecare or other forms of digital monitoring, e.g. email/webcam

42

Educationally Disadvantaged

Labour market (incl. pay scale mobility) improvements through e-learning

1,856

Labour market improvements (incl. greater job and promotion opportunities) through increased digital skills, e.g. email and internet search

560

Total 

2,767

Estimating the benefits foregone

To estimate the costs of digital exclusion, it is necessary to focus on the activities most frequently performed by each group that could be performed online rather than in person

For each of our clusters, we identified three specific activities that these groups would be most likely to benefit financially from being able to do online

On-line activities which would benefit the digitally excluded

Cluster 1: Unemployed, low income Online job search Finding benefits information online Saving money through online shopping, price comparison

sites Cluster 2: Elderly disabled and retired

Using the Internet to look for health information and reduce number of GP visits

Finding benefit information online Saving money through online shopping, price comparison

sites Cluster 3: Educationally disadvantaged,

Unemployed E-learning activities Using the Internet for work related tasks (like job search) Saving money through online shopping, price comparison

sites

Estimating the “benefits foregone” from a lack of involvement in online activities

We assumed that the costs of being digitally excluded can also be seen as ‘benefits foregone’

We also assumed that the ‘benefits foregone’ can be divided among those for the citizen, the government and the economy

For example, for the low income unemployed, finding that they are entitled to an extra-week of JSA online can be also taken as a benefit for government as DWP will save money from removing the phone section from the JSA application process

Our assumptions for this section were based on best data and literature available. Subsequently, these assumptions were discussed in a specialised online discussion forum from which we obtained useful insights to improve some of them

Our estimates show the total ‘benefits foregone’ over the course of a five-year period

Benefits foregone for Cluster 1: low income unemployed

Benefits foregone to the Citizen:  Missing Jobseeker’s Allowance (JSA) entitlement for the

Low Income Unemployed Group Finding a job through online job search Price comparison

Benefits foregone to Government Savings thanks to on-line applications for Jobseekers

Allowance

Benefits foregone to the Economy:  Productivity gains from reduced unemployment

Benefits foregone for Cluster 2: elderly, disabled and retired

Benefits foregone to the Citizen:  Attendance Allowance Price comparison Reducing GP visits

Benefits foregone to Government Reduced GP time

Benefits foregone to the Economy:  Reduced costs for informal social care for dementia

sufferers

Benefits foregone for Cluster 3: educationally disadvantaged and employed

Benefits foregone to the Citizen:  Pay scale mobility through digital inclusion Pay scale mobility through e-learning Price comparison

Benefits foregone to Government Reduced costs of providing training on-line to this group

Benefits foregone to the Economy:  Productivity gains from enhanced e-learning activities and

promotional and job possibilities with digital skills

3. Estimating the costs for government of tackling digital exclusion

Estimating the costs of a government initiative to tackle digital exclusion

   Year 1 (£ million)

Year 2 (£ million)

Year 3 (£ million)

Year 4 (£ million)

Year 5 (£ million)

Total Cost (£ million)

Low income unemployed

Moving JSA online8 60 30 30 23 150

Cost of providing internet access 261 80 80 80 80 580

Elderly and disabled

Cost of providing internet access 646 194 194 194 194 1,423

Educationally Disadvantaged (Employed/Basic Education)

Extra-provision of e-learning courses

0 0 55 148 166 369

Cost of providing internet access

565 172 172 172 172 1,253

Total Costs   1,480 506 531 624 635 3,775

Costs to govt per group per year for providing online access

0

100

200

300

400

500

600

700

Year 1 Cost Year 2 Cost Year 3 Cost Year 4 Cost Year 5 Cost

Cost (£millions)

Low income unemployed Elderly and disabled Educationally Disadvantaged (Employed/Basic Education)

Maximum total benefits obtained from digitally including all groups

 Year

(£million) Year 2

(£million)Year 3

(£million)Year 4

(£million)Year 5

(£million) Total

(£million)

Benefits to Citizen 650 463 502 1,087 1,123 3,824

Benefits to Economy

164 148 386 974 1,095 2,767

Benefits to Government

15 15 4 4 1 39

Total Benefits 829 626 892 2,065 2,219 6,631

Benefits per group per year in providing online access

0

500

1,000

1,500

2,000

2,500

Year 1 Benefit Year 2 Benefit Year 3 Benefit Year 4 Benefit Year 5 Benefit

Benefit (£millions)

Low income unemployed Elderly and disabled Educationally Disadvantaged (Employed/Basic Education)

4. Assessing the feasibility of tackling digital exclusion

A benefit-cost analysis

To assess whether it makes sense for government to intervene, we applied a benefit-cost analysis

The discount rate was assumed to be 5% per year

A positive Net Present Value (NPV) will indicate that the project is worth implementing

The Net Present Value of fully tackling digital exclusion

Net Present Values over 5 years (estimated)

-2,000

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

Year 1 Year 2 Year 3 Year 4 Year 5

NPV (£ Million)

Net Present Cost Net present benefit NPV

Conclusions and insights

The total NPV is positive, totalling £2.3 billion over the course of the five years

This indicates that the project is worth being implemented

Even modelling a 50% reduction in benefits at the end of the project would yield over £500 million NPV

Conclusions and insights

Our estimates have been conservative in not considering the impact of alternative new technologies such as i-pad, i-phone, etc

However, there may be a residualization problem in dealing with those that are still digitally excluded