California Takes Step to Encourage Internet Job Growth

I’ve been doing a lot of research recently on state and local tech-based tech-based economic development (see here).  And I’ve been thinking a lot about California’s economy.

From 2007 to 2011 the number of jobs in California’s “Internet industry”—web search, publishing, social media, and the like–rose by 50%. What’s more, that trend has continued. Over the past year alone, the number of California want ads for computer software engineers—the key human capital input for growing internet firms–has increased by 27%, according to The Conference Board’s database of help wanted ads.

Given the job-creating strength of the state Internet industry, it’s a good thing that  California–traditionally known as a high-regulation state–is  taking steps to protect its growth. On September 28 Governor Jerry Brown signed a bill that prohibited the state’s Public Utilities Commission from regulating Voice over Internet Protocol (VoIP) and other internet-based services, including mobile apps.

The bill made two important points:*

California’s innovation economy is leading the state’s economic recovery. Silicon Valley alone added 42,000 jobs in 2011, an increase of 3.8 percent versus a national job growth rate of 1.1 percent. The newly designated “app,” for application, economy has resulted in 466,000 new jobs nationwide, with 25 percent of that total created in California.”


The Internet and Internet Protocol-based (IP-based) services have flourished to the benefit of all Californians under the current regulatory structure.

In other words, if it ain’t broke, don’t fix it–a good principle.

The bill would stop the state’s Public Utilities Commission from putting more rules on Internet-based services, including VoIP. Clearly this makes sense for California, which is benefiting so much from the growth of the Internet sector. But this applies to other states as well:  if individual states started regulating Internet-based services, we would get the equivalent of trade barriers between states.

But there’s a broader question as well. The Progressive Policy Institute has just released a paper entitled Beyond Goods and Services: The (Unmeasured) Rise of the Data-Driven Economy. This paper shows how, more than ever, data is a potent source of economic growth.   Data consumption by individual Americans, if measured correctly, is responsible for adding an extra half percentage point  to GDP growth today. And that contribution is only going to grow over time.

That means states, localities, and countries have to encourage the growth of the data-driven economy, for the benefit of long-term prosperity .  And that means the old models of regulation won’t work in the 21st century economy.

Going forward,  one key question will how to regulate phone service as providers shift to a VoIP model.  Internet-based services were historically unregulated, and it may very well be that we get more innovation and growth if we pare back the regulatory structure on phone service as part of the shift to VoIP.

From that perspective,  California’s action may hold lessons for the rest of the country.

*The figure of 466,000 App Economy jobs was, of course, were drawn from my February 2012 paper Where the Jobs Are: The App Economy

One Reason Why Unemployment is Dropping

It’s difficult to reconcile the sharp drop in the unemployment rate with the relatively slow growth in measured real GDP. Some have criticized the unemployment statistics, worrying about an Obama ‘conspiracy’ to cook the unemployment books.

But an alternative explanation is that the government is underestimating the growth rate of real GDP by undercounting the strength of consumer data consumption. A new paper from PPI, Beyond Goods and Services: The (Unmeasured) Rise of the Data-Driven Economy, makes the case that consumer consumption of Internet-related activities–email, video, social media, games, maps, and so forth–is rising much faster than the BEA numbers show. Once we correctly adjust for consumer data consumption, real GDP growth goes up about 0.6 percentage points.

So if the official GDP growth for the 3rd quarter is 2%, then the actual growth growth, adjusted for consumer data consumption, may be closer to 2.5%. That may help explain the drop in the unemployment rate.

To see why the BEA is underestimating the strength of consumer data consumption, take a look at the chart below. This chart, drawn directly from BEA data, tracks real consumer purchases of “Internet access”–both mobile and wired.

Please note that according to these BEA figures, Americans are consuming less internet access in real terms than a year ago. That can’t be right. To put it a different way, the official GDP statistics are describing a world in which Americans are retreating from the Internet. That’s not the world we live in.

Because this is “real” consumption, the effect of price changes is already taken out of the statistics. And as we explain in the paper, the “missing” internet access does not show up anywhere else.

Internet firms have the fastest 4-year job growth

Over the past four years, which U.S. industry has produced the fastest job growth? The internet publishing, search and social media industry—from giants such as Facebook and Google to startups such as Pinterest–has seen a 44% gain in domestic employment since 2008, far outpacing the rest of the economy.*

This fits in with the rapid growth of App Economy jobs, which totaled 519,000 in April 2012, up from nothing in 2007.

*(Based on 5-digit NAICS codes, as reported by the BLS, measured from July 2008 to July 2012. Calculated previous to the release of the September job report).

Added: The internet industry is NAICS code 51913. See here for a full list.

Help-Wanted Ads Show Improving Labor Market, Lifted by Computer and Math Occupations

If you have a college student in your family who is looking for a job, remember this one word: “Data.”

Earlier this week the Conference Board reported that online help-wanted ads rose 232,000 in June, led by computer and math occupations. This positive note was buttressed by today’s ADP report of a projected 176K gain in jobs in June (see WSJ story), and a small drop in new unemployment claims.

In many ways, the continuing boom in tech employment going to be the  big story in the labor market  for at least the rest of the year.  Between mobile, apps, social media, and big data, the dizzying pace of innovation is creating demand for tech-savvy workers. This doesn’t necessarily mean coders, but it does mean some degree of familiarity and comfort with  the new developments in tech.

Right now the numbers are telling us that there are 5 want ads for every unemployed worker in computer and mathematical occupations. These want ads are all over the country, not just in the tech havens such as California and Washington.

By   contrast, the number of unemployed workers in business, financial and managerial occupations exceed the number of want ads by a considerable margin (roughly 1 million unemployed in business, financial and managerial occupations, compared to 750K want ads) (these figures come from the Conference Board press release).

I’m going to be looking at tomorrow’s jobs report for signs that the tech job boom continues.

The labor market continues to heal

Is the labor market stagnating or improving? Pessimists, including Mitt Romney, interpreted the weak April jobs numbers as a bad sign for the labor market. This negative view was seemingly confirmed by the May 8th BLS release on job openings, which started by saying: “There were 3.7 million job openings on the last business day of March, little changed from February.”

However, focusing on the private-sector tells a much different story. In fact,private-secto job openings actually jumped by 6% in March. Since December, private sector job openings have been rising at a 24% annual rate.

It’s worth taking a look at the following chart, created from BLS data.  This chart shows a steady improvement in the number of private-sector job openings, which are now back to the 2008 level. There’s no sign of a slowdown.

These data run through March 2012. But it’s worth noting that The Conference Board data on help-wanted ads show a continuing rise through April.

Why Instagram Purchase Is Good News for App Economy Jobs

The $1 billion purchase by Facebook of Instagram, a startup with a hot mobile photo app, was played up by the New York Times as a way for Facebook to stave off competition–“eat the new start-up before it eats you, or before a competitor grabs it.”

However, there’s another way to think about the Instagram purchase. Facebook just sent a strong signal to potential entrepreneurs and venture capitalists: If you have a good idea for an app, or can find someone with a good idea for an, you can get very rich very quickly by being acquired by a Facebook, or a Google, or a Microsoft. All of a sudden starting or financing a new company, with plenty of new employees, looks a lot more appealing.

In effect, an acquisition such as this one will likely stimulate competition, investment and job growth in the App Economy. Nothing spurs business creation and job growth like the prospect of making money fast. And the existence of deep-pocketed acquirers who are willing to spend heavily accelerates entrepreneurship. One startup today (Instagram) may be replaced by five tomorrow. (This argument was made at length in a paper I wrote last fall with Diana Carew “Innovation by Acquisition: The New Dynamics of High-Tech Competition.” )

What about the argument that purchases like this one are just fueling a new bubble? My answer: Having lived through the boom and bust of the 2000s, I’d be very happy to get a repeat of the boom and bubble of the 1990s. At least the boom one left us with the Internet and a full cabinet of new capabilities, rather than a bunch of empty houses and bankrupt countries. A technology bubble beats a financial bubble, any day of the week.

Speaking at App Economy Event in NJ

I’ll be speaking on the App Economy in New Jersey on Wednesday with Frank R. Lautenberg and FCC Chairman Julius Genachowski.

Live streaming here