Our Work

California tech-ecommerce jobs and tax revenues

• June 22, 2021
• Michael Mandel

The large tech and ecommerce companies have become massive job generating and income creating machines, hiring hundreds of thousands of workers in the United States. This is one of the great hiring surges in history, providing well-paying jobs for an unprecedented number of workers.

But just looking at hiring by the tech giants themselves does not fully answer the question of their impact on the labor market. It could be that, like tall trees, they block the sunlight and keep other tech companies and ecommerce companies stunted.

This “ecosystem dominance” would manifest as weak job and income growth in the tech-ecommerce sector as a whole.  If true, this harm to workers becomes a powerful justification for strong regulatory and antitrust growth against the tech giants. In other words, chopping down the trees would help the rest of the forest grow.

Alternatively, strong job and income growth across all tech and ecommerce industries would show the tech giants–who invested a stunning $65 billion in the United States in 2020—are playing a crucial role in a thriving ecosystem that benefits workers, raises wages and generates tax revenues.  Indeed, from 2015 to 2020—a period that includes the pandemic—the tech-ecommerce ecosystem generated 1.7 million net new jobs and added $289 billion in labor income. By comparison, the whole private sector lost 360,000 jobs. In that case, common sense would call for regulatory prudence.  As the saying goes “if it ain’t broke, don’t fix it.”

California

For this blog post we will focus on the job, income, and tax impact of the tech-ecommerce sector on California, which is the headquarters of three out of the four tech giants. In addition, in the fourth quarter of 2020,  Amazon employed more workers in California (153,000+) than it does in Washington (80,000+).

Our analysis builds on PPI’s April 2021 paper, “Innovative Job Growth in the 21st Century: Has the Tech-Ecommerce Ecosystem Become the New Manufacturing?”. The tech-ecommerce ecosystem includes five tech industries and three ecommerce industries. The tech industries are computer and electronic production manufacturing (NAICS 334); software publishing (NAICS 5112); data processing and hosting (NAICS 518); Internet publishing and search, and other information services (NAICS 519); and computer systems design and programming (NAICS 5415). The three ecommerce industries are electronic shopping and mail order houses (NAICS 4541); local delivery (NAICS 492); and ecommerce fulfillment and warehousing (NAICS 493).

We draw on Bureau of Labor Statistics data from the Quarterly Census of Employment and Wages (QCEW). This dataset reports on all wages, salaries, and bonuses, including ordinary income from exercised stock options. We look at the five-year period from 2015 to 2020, which includes the pandemic year.

Table 1 shows the growth of jobs and labor income in California’s tech-ecommerce sector from 2015 to 2020.  Tech-ecommerce jobs rose by 38% over the five-year stretch in California, compared to 31% in the United States as a whole. Meanwhile, private sector jobs rose by 0.3% in California and fell by 0.3% nationally (not shown on table).

Wages and salaries in California’s tech-ecommerce sector rose by an astounding 76% from 2015-2020, compared to 56% nationally. Meanwhile, private sector wages and salaries rose by 31% in California, and 21% nationally.

Table 2 shows the importance of the tech-ecommerce sector for California’s economy. The tech-ecommerce sector added 350,000 jobs between 2015-2020 in the state, and $100 billion in additional wage and salary income. That means the tech-ecommerce sector accounted for 38% of the entire increase in private sector wages in the state over that period.

Note that Table 1 and Table 2 break out the core tech counties, San Francisco, San Mateo, and Santa Clara, from the rest of the state. Taken together, the two tables show that both the core tech counties and the rest of the state have shown roughly equal rates of income growth from the tech-ecommerce sector.

Table 3 looks specifically at ecommerce and retail jobs in California. Obviously, the pandemic forced a dramatic decline of brick-and-mortar retail jobs in the state. At the same time, the number of ecommerce jobs increased by more than enough to counteract the decline of brick-and-mortar retail. Moreover, the ecommerce jobs were substantially better paid on average.

As a result, when we combine brick-and-mortar retail with ecommerce industries in California, the number of net jobs rose by 28,000. Average annual pay rose by 22 percent.

Finally, we turn to the question of the impact of the tech-ecommerce sector on personal income taxes in California. Tax collections have come in much stronger than expected, with personal income tax collections in the first nine months of the 2020-21 fiscal year running at 17% or $14 billion above forecast. Personal income tax revenues in the 2020-21 fiscal year are now forecast to be 54% about 2015-2016 levels.

How much of that gain is accounted for by the tech-ecommerce sector? There are several issues with making this calculation. The state government reports and forecasts tax revenue data on a fiscal year basis, while our data on the tech-ecommerce sector is on a calendar year basis and stops with 2020. Second, our definition of the tech-ecommerce sector includes a wide variety of industries, with average annual pay that runs from roughly $50,000 to well over $300,000. Third, much of the surge in personal tax revenues is coming from capital gains, which is directly connected with the success of the tech-ecommerce sector but is not reported in the BLS QCEW data.

Nevertheless, we can make a back-of-the-envelope estimate of the personal tax revenue generated by the tech-ecommerce sector. First, let’s start by looking the increases in personal tax revenues coming from wage and salary income (included ordinary income from exercised stock options) over the 2015-2020 period. By our estimate, the increase in tech-ecommerce wages and salaries accounts for roughly 37% of the increase in personal tax revenues from wages and salaries in the 2015-2020 period.

But of course, there has been a surge in capital gains revenues as well. If we attribute half the unanticipated increase in capital gains in 2020 to the tech-ecommerce sector, then tech-ecommerce accounts for roughly 42% of the increase in California personal tax revenues from 2015 to 2020.  This should be viewed as a rough estimate rather than a final number.