Lessons from the App Economy

My latest Atlantic.com column is entitled “What the App Economy Can Teach the Whole Economy.”  Take a look.

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.

Gain in Tech Help-Wanted Ads: Good News for Labor Market

After months of stagnation,  labor demand appears to be perking up again, according to the latest data from The Conference Board Help Wanted Online report. Led by gains in ads for tech jobs–otherwise known as computer and mathematical occupations–companies have boosted their demand for workers for the past two months, according to The Conference Board.

It’s fascinating to compare the number of want ads to the number of unemployed workers in different occupations. In tech occupations, there are almost 4 want ads for every 1 unemployed worker. That’s good odds!  And in fact, the unemployment rate for tech occupations dropped from 5.3% in December 2010 to 3.6% in December 2011.

By contrast, in education, training, and library occupations, the ratio is 1 want ad for every 4 unemployed workers. That’s far less favorable, and labor conditions appear to be getting worse. The unemployment rate for education, training, and library occupations rose from 2.7% in December 2010 to 3.3% in December 2011 (not seasonably adjusted).

When the January employment report comes out tomorrow, I will be looking for signs that the tech sector is continuing to lead the labor market out of its slump.

Innovation and job creation: The role of 4G

Over the years, I’ve written repeatedly about the role of innovation in creating jobs. Industries with stagnant innovation lose jobs to more dynamic competitors, while innovative industries lead the jobs parade.  For example, in July 2010 I wrote a paper entitled “The Coming Communications Boom? Jobs, Innovation and Countercyclical Regulatory Policy”, where I argued that the communications sector is going to be the jobs leader in the current expansion:

Today, the broad communications sector is an innovation success story in an otherwise sluggish economy. And that success feeds on itself. The Internet companies have access to bigger potential markets as the broadband providers deepen and extend their networks. The broadband companies benefit from innovative applications that drive traffic and demand. And the applications developers, small and large, are able to take advantage of new capabilities.

This interconnected and self-reinforcing collection of industries is reminiscent of the early stages of past booms, which were never driven by a single industry. In this case, the employment expansion of several communications-related industries, despite the overall weak labor market, is a sign that the broad communications sector is going to be a leader in the coming recovery.

Now there’s a new study from Rob Shapiro and Kevin Hassett  which provides confirmation of this thesis, as it applies to 4G.

we find that the adoption and use of successive generations of cell phones from April 2007 to June 2011, supported by the transitions from 2G to 3G, led to the creation of more than 1,585,000 new jobs across the United States. Moreover, every 10 percentage point increase in the penetration rate of 3G and 4G phones and devices occurring as we write today — in the last quarter of 2011 — should add 231,690 jobs to the economy by the third quarter of 2012.

 This implies that accelerating the rate of 4G adoption, in whatever way possible, can accelerate job creation. Good stuff!

Obama Administration makes crucial pivot on trade and jobs.

Moving into the 2012 election season, the Obama Administration is making a critical  pivot in its political and economic narrative on trade and jobs. During his Midwest trip this summer,  Obama extolled American workers as the most productive in the world,  and talked about free trade treaties as the solution to the job problem. The implication was that nothing was wrong, and the return of jobs was only a matter of time.

But the White House has just issued a new report entitled “Investing in America: Building an Economy That Lasts”  that tells a very different story. The new report starts by saying:

Over the past decade, real business investment in production capacity stagnated.     Economic growth in the U.S. relied far too heavily on an unsustainable boom in residential and commercial real estate fueled by an unchecked financial sector.    The bubble created by this boom distorted our economy and undercut the international competitiveness of our products and services.    Companies increasingly chased low‐cost labor outside of the U.S., moving their manufacturing production, and some of their services, like call centers and software development, abroad.

The report points to the stagnation in business investment, the rising trade deficit, and falling manufacturing employment as real problems.

The dramatic decline in the level of manufacturing employment after 2000 signaled that something fundamental had change

This is an extremely important report, both politically and economically. Economically it points to trade as a major reason for job loss. In particular, it makes the point that the boom pushed up production costs above sustainable levels.

Politically, the report positions Obama in favor of  taking effective steps to bring jobs back to the country. This is a much better stance to run against a Republican like Mitt Romney, since one way that private equity firms cut costs is by outsourcing production overseas.

To me, this report appears to reflect the influence of the new CEA head, Alan Krueger. Krueger, a labor economist, has a realistic idea of how trade has affected the U.S. labor market.

I would suggest that for its next step, the White House should support the idea of a Competitiveness Audit, which identifies the industries where insourcing makes sense, and points out places where more work needs to be done. This would be relatively cheap way of improving the speed of insourcing, and getting more jobs created here more quickly.

Why Obama Needs A Competitiveness Audit

President Obama is talking about ‘insourcing’…bringing jobs back into this country again. That’s great.

But can insourcing really create enough jobs to make a difference? That depends on how on whether  the U.S. is becoming competitive in a  broad range of industries, or whether it’s a limited phenomenon.

That’s why PPI has proposed a Competitiveness Audit as an essential part of a job-creation strategy.

The Competitiveness Audit will compare the price of selected imports with the comparable domestically produced goods and services. That will tell us the size of the ‘price gap’ between imports and domestic production.

The initial results of the Competitiveness Audit will enable us to identify industries that are globally competitive (domestic prices are below import prices, so the price gap is negative); industries that are currently uncompetitive (domestic prices are significantly above import prices); and industries that are ‘near-competitive’ (domestic prices only slightly above import prices).

The results of the Competitiveness Audit will enable businesses and economic development agencies to target their insourcing efforts to industries that are ‘near competitive’, where a bit of government help could make a big difference.

Congress and Ostrich Economics

Faced with the need to make policy in a rapidly changing economy, Congress is going absolutely the wrong way by planning to cut funding for the Census Bureau to $888 million next year, down from $1.15 billion.

The cuts are likely to damage the government’s ability to track the economy on a timely basis, including potentially eliminating the Survey of Business Owners, which tracks the very entrepreneurs who create jobs.

To put it another way: If you are steering a car along a dark road at night, you don’t turn off the headlights. Bad data lead to bad policy mistakes.

Indeed, if we want to do a better job of encouraging job creation today, Congress should actually boost spending on data that can help make better policy decisions. PPI has suggested that a small amount of additional money for the Bureau of Labor Statistics could help fund a Competitiveness Audit. Such a program could help identify those domestic industries which are ‘near-competitive’ on global markets, so that a small amount of economic development funds could make a big difference for job creation.

It’s worth noting that the first set of national economic accounts were created during the Great Depression of the 1930s by Simon Kuznets. All sorts of other economic statistics date back to the Great Depression as well, including comprehensive unemployment figures.

The current crisis should be a sign that we need to broaden our understanding of the economy, not narrow it.