App Economy is ‘job leader’ into the future

Last spring Technet asked me to examine the size of the ‘App Economy’, focusing on the number of jobs being created.  The official job statistics from the BLS were no help, given the speed at which the App Economy was evolving.  Instead, I developed an innovative methodology for using a ’21st century’ database, The Conference Board Help-Wanted OnLine, to track App Economy jobs.

The study, “Where the Jobs Are: The App Economy,”  has just been released by Technet. I found that

 App Economy now is responsible for roughly 466,000 jobs in the United States, up from zero in 2007 when the iPhone was introduced. This total includes jobs at ‘pure’ app firms such as Zynga, a San Francisco-based maker of Facebook game apps that went public in December 2011. App Economy employment also includes app-related jobs at large companies such as Electronic Arts, Amazon, and AT&T, as well as app ‘infrastructure’ jobs at core firms such as Google, Apple, and Facebook. In additional, the App Economy total includes employment spillovers to the rest of the economy

I want to make several points here.

  • In earlier research done for the Progressive Policy Institute, I looked at ‘job leaders’–industries that, coming out of recession,  manage to create new jobs  well before the rest of the economy.  I found that the industries which are the job leaders during a recession tend to be the big drivers of the expansion that follows. So during the recession of 1990-91, the job leaders were infotech services such as software, computer systems design and data processing services, all of which turned out to be big job creators in the tech boom of the 1990s.  Similarly, the job leaders in the recession of 2001 were finance, real estate, and residential construction, signalling the housing and financial job growth from 2001-2007
  • Today, the App Economy is clearly a job leader. It managed to create jobs during the worst recession since the Great Depression, suggesting that the App Economy will be a major driver of  job growth during the coming expansion.
  • The App Economy cross-cuts industries, including  leading internet companies such as Google and Facebook, hardware/software developers such as Apple and Electronic Arts, smaller app developers,  and wireless providers such as AT&T.
  • State and local governments that want to participate in the coming expansion should think about encouraging App Economy jobs. The methodology I used enabled me to identify App Economy jobs by state and MSA. Much more could be done along these lines.
  • The federal government needs to adopt policies to encourage App Economy growth. More about this in my next post.

Misinterpreting Data: How the WSJ Got the Wireless Jobs Story Wrong

On July 17 the online edition of the WSJ published a widely-cited story entitled Wireless Jobs Evaporate Even As Industry Expands. The main point of the story  (my emphasis):

In May, on the heels of a record year for industry revenue, employment at U.S. wireless carriers hit a 12-year low of 166,600, according to U.S. Labor Department figures released earlier this month. That’s about 20,000 fewer jobs than when the recession ended in June 2009 and 2,000 fewer than a year ago. While the industry’s revenue has grown 28% since 2006, when wireless employment peaked at 207,000 workers, its mostly nonunion work force has shrunk about 20%.”

In addition, the Journal digs further into the official data and claims that:

The number of customer-service workers at wireless carriers dropped to 33,580 last year from 55,930 in 2007, according to the Labor Department

Seems like a pretty straightforward story, doesn’t it?  The Journal is quoting directly from authoritative BLS data to demonstrate that the  wireless industry has been losing jobs, despite the mobile boom. The big picture message: Innovation does not equal job growth.

Unfortunately, the reporters and editors at the WSJ  fell into the same trap that has ensnared many other journalists, policymakers, and even economists. They looked at the label on a piece of official economic data, and assumed that they understood it.  But as we saw during the financial crisis and subsequently,  government economic data can all too easily be misinterpreted.

In this case,  the article was based on the Journal’s analysis of jobs in the “wireless telecommunications carrier industry,”  as defined by the BLS. However,  despite the name of the data series, it turns out that:

  • The BLS definition of the “wireless” industry does not include company-owned  retail stores or stand-alone company-owned call-centers.
  • The customer service numbers cited do not include  company-owned retail stores or stand-alone company-owned call centers.
  • The 2007 occupational data in telecom cited in the story cannot be compared with later years, because the telecom industry classifications in the occupational data were substantially redone in 2008.

As a result:

  • The data cited in the WSJ article completely misses the growth of jobs at company-owned retail stores (see Metro PCS chart below)
  • The data cited in the WSJ article potentially misses call center job growth such as the expansion of Verizon’s Nashville call center (see example below)
  • The phrase “employment at U.S. wireless carriers hit a 12-year low”  simply cannot be supported by the available data.  Data from the industry trade association (CTIA), which shows wireless employment up 36% since 2000, is much more plausible (see chart below).
In my view,  the WSJ article is a classic case of misinterpreting official statistics.

Before getting into the details, why am I taking the time and trouble to disassemble this particular article?Historically innovation and job creation have been closely linked, as I have argued in multiple papers and articles. With Washington now fighting tooth and nail over the budget, it’s very important for policymakers to understand that successful innovation creates jobs, not the opposite.

Second,   journalists, policymakers, and economists need to understand how easily government statistics can be misinterpreted.  For example, the statisticians at the BLS have reported huge U.S. productivity gains over the past decade, including the years following the financial crisis–a fact that has been duly repeated by journalists and applauded by economists.  However, in a recent paper, Sue Houseman of the Upjohn Institute and I argued that these reported U.S. productivity gains could be interpreted, in part,  as  an increase in the efficiency of global supply chains.  It matters enormously for jobs and wages whether productivity increases are coming from more efficient domestic operations, or more efficient offshoring.

Or consider  consumer spending.  Journalists regularly report that  “consumer spending accounts for 70 percent of economic activity.”  (see, for example, this recent Associated Press story that ran on the New York Times website). However this number,  calculated by dividing consumer spending into GDP, is pernicious nonsense. Nonsense,  because consumer spending includes a big chunk of  imports, which does not correspond to economic activity in the U.S.  Pernicious,  because it perpetuates the fallacy that the U.S. cannot recover without gains in consumer spending (see my blog post on the subject here).

Details

Now let me turn to the details of the WSJ’s mistake, or if you’d like, misintepretation.  The WSJ analyzed BLS jobs data for the “wireless telecommunications carrier industry”, (with the NAICS  ID 5172). That data looks pretty bleak (if you want to download the data for yourself, instructions are at the end of this post).

However, the WSJ apparentlydid not realize  that the BLS collects industry employment by establishment, not by company. The BLS defines an establishment in this wa:y

An establishment is an economic unit, such as a farm, mine, factory, or store, that produces goods or provides services. It is typically at a single physical location and engaged in one, or predominantly one, type of economic activity for which a single industrial classification may be applied.

Whenever possible,  the BLS assigns each establishment to an industry, and counts all the employment at that establishment at part of that industry.

Viewed from this perspective, a single wireless carrier, such as Verizon Wireless or Metro PCS,  will typically include several different types of establishments, each of which will be assigned to a different industry.

  • Wireless operations are in NAICS 5172 (“Wireless telecommunications carriers”)
  • Company-owned call centers are in NAICS 56142 (“telephone call centers”)
  • Company-owned retail stores are in retail trade, probably NAICS 443112 (“Radio, TV and electronics stores”)
  • Mobile tower and base construction could be in NAICS 23713 (“Power and Communication Line and Related Structures Construction”)
There might even be more different types of establishments in the wireless industry…it’s hard to tell.

This has several implications. First, retail expansion by wireless providers is counted in the retail trade industry, not  the BLS “Wireless Industry” numbers that the WSJ used.  This is true even if the store is carrier-operated.

For example, the tremendous expansions of retail stores by Metro PCS  in recent years, with added jobs,  did not show up in the WSJ data (for a related example,  employees at Apple stores are counted in the retail industry, not the computer industry).

Second, to the degree that wireless carriers are expanding stand-alone call centers, those additional jobs are not being picked up by the WSJ data.  We don’t know exactly how many there are, but we do know that overall national employment at telephone call centers have been rising, surprisingly enough.  It’s likely that the expansion of the wireless industry is a factor in that rise in call center employment.

We also know that at least some wireless telecom companies have been hiring at their call centers. For example, it took the work of five minutes to find this example of Verizon hiring workers for a call center outside of Nashville. Here’s an excerpt from the July 1, 2011 story in the Nashville Post:

Verizon Wireless has announced via Facebook and Twitter that it will expand its Sanctuary Park Center of Excellence Loyalty Retention Center by opening an office in Franklin. The company plans to add some 300 jobs in the Franklin area over the next 18 months.

“We’re excited about this expansion for several reasons. It allows us to continue to provide customers with the high quality of service they expect from Verizon Wireless,” said James Nelson, associate director of customer service. “It’s also great to be a source for new job opportunities – especially in this economy.”

Further, the company said, “Many of the thousands of calls handled by LRC representatives each month are from customers requesting to discontinue service. It is their responsibility to convert as many of those disconnect requests into satisfied customers.”

The company ran its first training sessions in May and plans to begin taking calls at the center starting July 5.

I didn’t research this example any further. But it looks like these new call center jobs are not counted in the BLS data that the WSJ was using.

Finally, those customer service figures that the Journal made such a big deal about. Let me repeat the quote from the Journal story.

The number of customer-service workers at wireless carriers dropped to 33,580 last year from 55,930 in 2007, according to the Labor Department

Actually, that sentence is not correct as it stands.  The WSJ is citing occupational data pertaining to the “wireless” industry as defined by the BLS (NAICS 5172).   By definition, the WSJ’s figure for customer-service workers excludes  company-owned stand-alone call centers (like the previous example for Verizon Wireless). As a result, the figures cited by the Journal are absolutely useless for determining whether  wireless carriers are hiring or firing customer-service workers.

Just to add insult to injury, there’s a subtle twist that no reporter could be expected to know.  Buried deep in the documentation, the BLS explains that:

In 2008, the OES survey switched to the 2007 NAICS classification system from the 2002 NAICS. The most significant revisions were in the Information Sector, particularly within the Telecommunications area.

The implication is that telecom occupational data from 2007 simply cannot be compared to later years (I believe that the BLS would agree with that, if asked).

What’s the bottom line here? Let me show you again the chart of the jobs in the  BLS “wireless industry” (the data the WSJ used), and compare it to the survey of wireless industry employment done by CTIA, the wireless industry association.

The industry association figures-rose by 46% from 2000 until 2008, before dipping by 7% from 2008 to 2010.  By contrast, the BLS “wireless” data, which does not include call centers, retail stores, and tower construction, rose by only 8% from 2000 to 2008. Now, honestly, in the middle of a wireless boom of historic proportions, which figure do you think is more likely to reflect “employment at wireless carriers”, the phrase used in the WSJ story?

Now, that brings me to my final ethical question: Does the Journal have an obligation to run a retraction or a corrective story?  The article did not slander or libel anyone, and the reporter used the government statistics in good faith.  However, because the statistics did not mean what the Journal thought they meant, the story is filled with statements which leave readers with the wrong impression.  The typical reader  would read the story and naturally conclude that the phrase ” employment at U.S. wireless carriers hit a 12-year low”  referred to the number of workers who receive paychecks from Verizon Wireless, Metro PCS, the wireless part of AT&T, and the like.  But as we have seen, that phrase is based on government figures that only reflect a portion of wireless carrier employment.

More importantly, the story’s big picture conclusion–that innovation does not equal job growth–is not supported by the statistics. In this era of distrust of the press, should publications make an effort to clarify the record if their original story is faulty?

 

 

Coda: How to Get the Government Data that the WSJ used

 

Go to  http://www.bls.gov/data/#employment

Click on “Employment, Hours, and Earnings – National, Multiscreen data search”

Check ‘Not seasonally adjusted’, and click on ‘next form’

Scroll to ‘information’, and  click on ‘next form’

Click on ‘all employees, and  click on ‘next form’

Scroll to “wireless telecommunications carriers (except satellite)”, and  click on ‘next form’

Click on ‘retrieve data’

The data for customer service representatives in the wireless industry in 2007 can be found at

http://www.bls.gov/oes/2007/may/naics4_517200.htm#b41-0000

Too Soon to Tell About FCC Rules

I had hoped to write a simple post giving thumbs up or down to yesterday’s FCC ‘net neutrality’ rule-making. Alas, I can’t, yet.

Let me explain. I judge their actions by applying the principle of countercyclical regulatory policy: In recessions, the government should refrain from imposing heavy-handed regulations on innovative, growing sectors. The goal is to keep the communications innovation ecosystem growing and healthy.

From that perspective, the three basic rules that the FCC approved are fine: Transparency, no blocking of legitimate websites, and no “unreasonable discrimination” by wired broadband.

The key here is the transparency provision, which gets little attention. If we look back at the wreckage of the financial boom and bust of the 2000s, the big problem was not financial innovation. Rather, the big mistake made by the financial regulators was not pushing for more information about the decisions being made by Wall Street. That would have enabled regulators to put up a stop sign before things got out of hand.

Learning from that bad example, an intelligently-enforced transparency provision for broadband providers—requiring them to release “accurate information regarding the network management practices, performance, and commercial terms of its broadband Internet access services”—would go an awfully long way to deterring abusive practices without interfering with innovation.

If the FCC had just stopped with its three rules, we could be heading for the best of all possible worlds …where the communications innovation ecosystem keeps growing, the providers earn enough profits to allow them to keep investing, but where transparency helps encourage them to be good stewards and not to be too greedy.

But not content to leave well enough alone, the FCC appears to have added a lot of extra verbiage to the order that muddies the waters,  to the point where I can’t even figure out what they are trying to achieve. I say ‘appears’ because all we have so far is excerpts from the text, rather than the full text itself.

If regulators can’t make rules that are clear and straightforward, it’s a sign they shouldn’t be doing it. I wait eagerly for the actual text of the order.

FCC’s Nutty Policy Move

The current word is that the FCC will vote on net neutrality regulations sometime before Christmas. But does the Obama Administration really want to start 2011 with a fight over telecom?

As I’ve consistently said, there are theoretical arguments for and against net neutrality. But the timing is just horrible, for two reasons.

First, it’s really a dumb move to monkey with the vibrant and growing communications sector when the rest of the economy is so weak. It’s as if you have two cars–one running, one in the repair shop–and you decide it’s a good time to rebuild the transmission of the car that actually works because you hear a few squeaks.

Second, the Obama Administration’s cardinal achievement so far is healthcare reform. Flawed as it is, Obamacare represents an absolutely essential step forward. The Administration should be concentrating its effort on defending healthcare reform rather than  looking for new industries to regulate.

 

 

The FCC and the Jobs Report

On Wednesday the FCC announced that it was going to put off tightening regulations on broadband providers.  Today, the  Bureau of Labor Statistics announced that private payrolls rose by 67K  in August, a gain mostly due to an increase of 45K in healthcare and education, two sectors that are heavily government supported.

Indeed, over the past year, the rest of the private sector, outside of healthcare and education, has lost jobs.

However, there are pockets of strength. One such pocket is in the communications sector,  where employment wireless communications, Internet companies  (think  Google), and custom computer programming services (think apps developers)  are up over the past year. This is a sign that this sector may be one of the leaders in the recovery.

From that perspective, the FCC made exactly the right decision when it postponed imposing new regulations on communications.  At a time when there are so few economic bright spots,  it would be a serious mistake to take a regulatory hammer to a growing sector.

There’s a sign that the FCC is recognizing these imperatives. In the statement released on Sept. 1, the FCC said:

in light of rapid technological and market change, enforcing high-level rules of the road through case-by-case adjudication, informed by engineering expertise, is a better policy approach than promulgating detailed, prescriptive rules that may have consequences that are difficult to foresee

But there’s a broader principle here. As I have suggested, the Obama Administration needs to think in terms of countercyclical regulatory policy. Regulations are essential for making the market economy work, but timing is essential–not just in communications, but in biosciences, environment, education, and a whole host of different areas. Overly enthusiastic regulation in a deep downturn is not the way for fast and healthy growth.

The Two-Track Economy: The Coming Communications Boom

Today’s jobs report shows a bit of good news–123K new private sector jobs.

But let’s take a step back from the month-to-month flow of the data and ask a different question.  Is the job market giving any sign yet of the shape of the coming recovery? I’m going to apply what I call  “Mandel’s Second Law of Booms and Busts” :   Industries which recover first in a bust tend to drive the next boom.

The intuition is that any industry that can hire in the face of economy-wide malaise clearly has enough strength to boom when the economy does finally start to rebound.  For example,  after the 2001 bust, residential construction and real estate businesses started adding workers well before the rest of the economy recovered. This gave a clue (a ‘weak signal’) to the shape of the coming recovering, suggesting that it would be powered by housing.

So which industries are jumping ahead of the pack this time? Healthcare, of course, has not been in a slump at all.  But other industries have also been able to withstand the downward pressure– Internet publishing, broadcasting and web search portals,  computer systems design and programming, and wireless telecom.

Broadly speaking,  the communications sector, broadly defined,  seems to be recovering before the rest of the economy.  This may be telling us something about the shape of the coming recovery.

I’m going to put myself out on a limb here. I think that this coming recovery will be driven by a communications boom, including a media boom.  This includes everything from Google, to Apple, to Facebook, to mobile payment, to health-related applications, to my new company Visible Economy LLC  (I am putting my money where my mouth is!) 

That suggests we may have a two-track economy for a while. Communications and related areas may have good times, adding jobs and growing. But the rest of economy may bounce along the bottom for a while, especially if  local and state governments have to start tightening their belts several notches.  

 

 

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