NYT Article on App Economy Understates Jobs Impact

As most of you know, I spent years as chief economist and lead economics writer for BusinessWeek. And I have utmost respect for the difficult task that journalists face under deadline pressure.

Having said that, I feel that the NYT article As Boom Lures App Creators, Tough Part Is Making a Living understates the jobs impact of the App Economy in three ways.

First, the article notes that the App Economy “was responsible, directly and indirectly, for 466,000 jobs,” as of the end of 2011, based on a February 2012 study that I did for Technet. However, an October 2012 report entitled The Geography of the App Economy, done by myself and Judith Scherer, showed 519,000 jobs in the App Economy as of April 2012. It would have been much more accurate for the reporter to have cited the more recent–and larger–estimate of App Economy jobs.

Second, it’s certainly true that App Economy entrepreneurs are not all successful, just like entrepreneurs in other fields. However, “The Geography of the App Economy” paper makes it clear that large companies are hiring droves of app developers in-house to create and maintain apps, listing quite a few by name. That paper identified 10 different categories of App Economy jobs, only one of which consisted of the stand-alone app developers that the NYT article focuses on.

Entrepreneurs know that startup businesses typically take at least 3-5 years to make a profit. How long were the entrepreneurs they interviewed in business? And the skills and experience these people develop in their own ventures make them more appealing to be hired at large salaries by more established companies. Indeed, the article notes in passing that one of the entrepreneurs was then able to get a job as a app developer working for a larger company.

In our research, we have found that one of the biggest problems facing App Economy entrepreneurs is that they are competing with large companies for the same talent pool of skilled computer software engineers, user interface designers, and others with app economy skills. In this industry, talent is the most important input, wages are high and rising, and there’s more demand for these skilled individuals than there is supply.

Finally, the NYT article ignores the positive impact of the App Economy on state and local economic development. In an upcoming paper, South Mountain Economics will look at the ways that some leading states and cities are trying to attract app developers and other innovative companies as the foundation for growing their economies. These innovation-minded economic development efforts will turn out to be crucial for economic success going forward.

Which States Are Winning the Business R&D Race?

The National Science Foundation collects and releases a veritable fire hose of science- and innovation-related statistics that never get the attention that they deserve.* For example, earlier this year the NSF published a study entitled “Businesses Concentrate Their R&D in a Small Number of Geographic Areas in the United States.”

This study should be required reading for anyone interested in how the Innovation Economy has developed geographically. I’ve taken the liberty of doing some calculations on just a small portion of the reported data (there is much much more):

Let’s start with the ordering. California’s rank as #1 is no surprise. But New Jersey’s ranking as #2 and strong growth is unanticipated (though it’s consistent with NJ’s relatively high ranking in our Geography of the App Economy study).  New Jersey R&D grew almost as fast as Massachusetts over the 1987-2008 period.

The R&D spending in NJ, PA, and CT came mainly from the pharma industry.  I’m going to look to see whether these states have tried to build on their advantages, or whether they have let them dissipate.

Also a surprise is Michigan’s continued high ranking. Auto industry R&D has not been growing very fast. Nevertheless, the industry has poured an enormous amount of money into Michigan over a long period of time, providing a potential base for future tech growth. Indeed, our upcoming study on tech and economic development identifies the Detroit area as having a very interesting cluster of tech-related companies.

More to come.

*Full disclosure–I serve on a National Academy of Sciences panel which is conducting “a study of the status of the science, technology, and innovation (STI) indicators that are currently developed and published by the National Science Foundation’s (NSF) National Center for Science and Engineering Statistics (NCSES).” This post uses only public information contained in the cited study.

Fast broadband enables tech job growth in Kansas City

The WSJ has a great article entitled “City’s Tech Pioneers See Strength in Numbers.”  The article discusses how the new ultrafast broadband being built by Google in Kansas City is already encouraging startups.

By the time Google began installing its Fiber service on Tuesday, nearly a dozen startups had moved into a six-block radius—about half packed into two houses—including companies building a search engine for social-network data and security software for smartphones that identifies users by vein patterns in their eyes.

“There was already a movement,” said Adam Arredondo, a shaggy-haired 28-year-old who runs a website for local events out of one of the house’s basements. Google Fiber “was the accelerant,” he said.

If the Kansas City project succeeds, that’s good news for many economically languishing areas across the countries. When we did our report on “The Geography of the App Economy,” we found that app economy jobs were being created in every state, even without the impetus of ultrafast broadband. With the right policies,  there could be a massive economic renaissance built around tech.

That’s also the message coming from a new book by Reed Hundt and Blair Levin entitled The Politics of Abundance–technology can help pull us out of the doldrums, if we follow the right policies. (longer review to follow).