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The Physical Nation vs The Digital Nation

By / 11.13.2016

Here are some bullet points on the economics of the election:

  1. America is divided between the Digital Nation and the Physical Nation. The Digital Nation includes tech, entertainment, publishing, telecom, finance, and professional services such as management consulting, accounting, computer programming, design. The Physical Nation includes manufacturing, mining, construction, retail, transportation, health care, and the rest of the economy The Digital Nation makes up about 25% of private sector employment, the Physical Nation 75% (we first laid out this division of the economy in a March 2016 report).
  2. While there are many factors going into Trump’s election, on the economic side, there was one reality:  The members of the Physical Nation finally got tired of suffering  while the Digital Nation soared. And since the Physical Nation outnumbers the Digital Nation 3-1, that’s the election.
  3. For the past fifteen years, the Digital Nation enjoyed strong productivity growth, stable prices, high investment in IT, rising employment, and higher (and rising) incomes. By contrast, the Physical Nation has suffered from weak productivity growth, rising prices, weak investment in IT, weak employment growth (outside of healthcare), and lower (and barely rising) incomes.
Digital Nation vs Physical Nation
Digital Nation Physical Nation
Productivity growth rate (2000-2015) 2.7% 0.7%
 

Real compensation per worker,  growth rate (2000-2015)

1.3% 0.8%
Employment growth rate (2000-2015) 1.3% 1.4%

0.1% (without healthcare)

Share of private sector employment (2015) 25% 75%
Share of private sector compensation (2015) 35%  

65%

 

Share of IT investment (2015) 75%  

25%

 

Annual price change 0.8%  

2.4%

 

Data: BEA, BLS, author calculations

The split between the digital and the physical sector was first described in Mandel (2016). Numbers may differ slightly from earlier calculations.

 

4. The Digital Nation is concentrated in blue states. States that voted for Clinton in this election averaged 35% digital, while states that voted for Trump are 23% digital on average. Here are the top states, measured by share of private sector GDP coming from the digital sector.

 

Top Digital States
Share of private economy that is digital
DC 49.9%
Delaware 47.8%
New York 43.8%
Massachusetts 37.7%
Oregon 37.4%
Connecticut 34.3%
Virginia 33.5%
California 33.5%
Colorado 32.5%
Rhode Island 31.5%
Maryland 31.1%
Georgia 30.8%
NH 30.4%
Illinois 30.1%
New Jersey 29.8%
Minnesota 29.8%
Washington 29.4%
Missouri 28.0%
North Carolina 27.7%
Utah 27.6%
Pennsylvania 27.2%
Arizona 26.8%
Florida 26.5%
South Dakota 26.3%
Ohio 25.8%
Nebraska 23.5%
Kansas 23.3%
Michigan 23.3%
Wisconsin 23.2%
Data: BEA, author calculations

 

 

Next: How trade and productivity growth have affected the Physical Nation