The promise and peril of digital technology: evidence from digital skill polarization in Indonesia

Abstract The expansion of the digital economy presents new economic opportunities, particularly for geographically challenged populations, yet its benefits hinge on individuals’ ability to leverage digital tools productively. This paper proposes a conceptual framework to measure digital skills in developing economies, demonstrating its application with novel and nationally representative survey data from Indonesia. Despite the massive rollout of internet connectivity, there is a lack of systematic frameworks to assess and monitor digital skills, particularly in developing economies. This gap limits policymakers’ ability to design effective interventions that address the challenges of skill-biased technological change. Focusing on Indonesia, this paper introduces a novel framework to assess adults’ digital skills and its application using survey data. The paper reveals several important insights. First, digital skills remain very low among adult population in Indonesia, potentially undermining the impact of improved internet connectivity in the last few decades. Second, among internet-users, most have skills for general use, such as communications, whilst only a small share has specialized skills (e.g., work-related, productivity software, or programming language). There is also heterogeneity in digital skills across different demographic groups. Digital-skills proficiency is driven by the interplay of both technical and cognitive abilities (critical thinking and growth mindset), along with certain demography factors such as connectivity, age, and education level. Advanced skills are concentrated among those with better connectivity, higher education, and prime working age. The paper highlights the need for systematic tracking of digital literacy and skill development, the integration of skill-building strategies into national digital transformations to mitigate impacts from skill-biased technological change. The paper concludes with insights and policy implications relevant to broader emerging economies.