It is amazing how many of our nation’s biggest challenges can be addressed by a simple formula: faster growth more broadly shared. From infrastructure to healthcare, education to national security, crime to creativity, a bigger pie and a wider winner’s circle go far towards solving them.
A simple comparison of potential growth rates tells the story. At the current expected growth rate of 2% annually, the country will struggle to meet its obligations and invest in the future. But if growth accelerates to 2.7% annually, as this paper’s analysts project, it will add a cumulative $8.6 trillion in wages and salaries over the next 15 years (measured in 2016 dollars).
And while Americans will have more to spend on meeting their needs, the government will have more funding to help out. Federal revenues will go up by an added $3.9 trillion without any increase in federal taxes as a share of GDP. Some of that will go to cutting the debt, while still leaving additional revenue for other needs, such as infrastructure and security. (These figures are based on projections and analysis developed in this paper.)
WASHINGTON—The Technology CEO Council (TCC) today released a new economic analysis, co-researched and written by PPI Chief Economic Strategist Michael Mandel that shows a coming U.S. productivity boom enabled by the diffusion of information technology (IT) into the physical industries, including manufacturing, agriculture, healthcare, transportation, and energy. Far from a jobless future, Mandel’s co-analysis predicts that increased use of information technology will make the physical economy more productive and American workers more valuable.
“Job and productivity growth has stalled in many industrialized countries, including the U.S.,” says Mandel. “While some economists will put the blame squarely on IT for disrupting industries and destroying jobs, the surprising fact is that 70 percent of companies in the U.S. economy are not taking full advantage of the power of information technology. And that’s the problem.”
By comparison, digital industries have fully embraced information technology, building new products and platforms—the PC, the Web, the smartphone, cloud computing, electronic financial markets—all of which empowered further explosions of entrepreneurial activity and along with it, jobs.
According to the report, this IT-enabled transformation could add $2.7 trillion to U.S. annual economic output by 2031 (in 2016 dollars), and grow federal revenues by a cumulative $3.9 trillion over the next 15 years.
In particular, The Coming Productivity Boom details a manufacturing sector in the midst of major transformation—not just by robotics and 3D printing, but by the emergence of smart manufacturing, a fundamental rethinking of the production and design process that will substantially boost productivity and demand. In turn, smart manufacturing will lead to the creation of a new set of manufacturing-related jobs and allow American factories to compete more effectively against low-wage overseas competition.
Catalyzing this growth requires better tax policy, the free flow of goods, services and data around the world, investments in communications networks and in education and training, as well as an embrace of innovation among regulators.
While much of the debate over the first few months of the Trump Presidency has focused on immigration, cabinet nominations, and Russian interference in the U.S. election, the push toward corporate tax reform may be building momentum.
With a growing number of President Trump’s inner circle embracing Speaker Paul Ryan’s proposed Border Adjusted Destination-Based Cash Flow Tax (DBCFT), the likelihood the concept will be included in a final tax reform package has jumped considerably.
At the same time, the Ryan proposal has split the business community and drawn fire from some prominent Senate Republicans, raising questions as to whether Republicans can unite behind the Ryan approach – or, indeed, any tax reform proposal. Meanwhile, Democrats are keeping their powder dry, noting that, at this point, no one has actually seen a concrete proposal. It’s time for Republicans to show us their plan.
In our new paper, we develop a methodology for tracking ecommerce jobs and pay. Applying that methodology to today’s jobs report, we find that the ecommerce sector has added 97,000 jobs over the past year. This figure includes fulfillment centers. Surprisingly, general retail–which includes the retailers competing most directly with ecommerce–has added 27,000 jobs over the same stretch.
The ecommerce jobs pay much better than general retail. For example, production and nonsupervisory workers in the ecommerce sector, including fulfillment centers, earned an average of $17.41 per hour in 2016, compared to $13.83 in general retail—a 26 percent premium.
Based on official data, it looks like the ecommerce sector is adding new, better-paying jobs without actually reducing existing jobs in retail. Moreover, as our paper shows, these jobs are widely distributed around the country, including states such as Kentucky and Indiana.
Background: In our new paper, “The Creation of a New Middle Class?: A Historical and Analytic Perspective on Job and Wage Growth in the Digital Sector, Part I,” we explore the possibility that the job and wage growth generated by the digital boom is creating a new middle class, with gains across the entire country. Our historical benchmark is the first half of the 20th century, when superstar industries companies such as Ford, General Motors, General Electric, and DuPont accomplished what had seemed impossible at the time: create hundreds of thousands of jobs while paying good wages and offering consumers lower prices than their rivals. We provide evidence that
For the purpose of this analysis, we define the ecommerce sector to include what the government calls the “electronic shopping and mail order house” industry (NAICS 4541) and “general warehousing” (NAICS 49311). Based on careful examination of the data, this second industry apparently contains the bulk of fulfillment centers and similar establishments.
We define the general retail sector to include those retailers that compete most directly with ecommerce, including electronic and appliance stores (NAICS 443); clothing, shoes, and jewelry stores (NAICS 448); sporting goods, hobby, musical instrument, and book stores (NAICS 451); and general merchandise stores, including department stores and supercenters (NAICS 452).
Because of the way that the BLS collects data, it is possible that the general retail sector includes some workers involved in ecommerce. That would mean we are underestimating ecommerce jobs and overestimating brick-and-mortar general retail jobs by the same amount.
For the results reported in this blog post, we use 12-month averages.
We’re grateful to have our new report mentioned in Neil Irwin’s piece today in the New York Times about tech employment. The report, An Analysis of Job and Wage Growth in the Tech/Telecom Sector, to be presented at the TPRC conference later this week, directly compares employment at today’s leading tech/telecom firms with employment at the industrial leaders of the past. Here’s what we found:
• Today’s 10 most valuable tech/telecom companies employ roughly 1.5 million people, up 63 percent over the past 10 years.
• In 1979, at the peak of US manufacturing employment, the 10 most valuable industrial companies employed 2.2 million workers, 48 percent more than employment at 2017 tech/telecom leaders.
• The average employment of the vintage-2017 tech/telecom leaders is 149,000, compared to a 222,000 average for the vintage-1979 industrial leaders. However, the industrial average is heavily influenced by General Motors, which is an outlier. If we omit General Motors, the employment average of the other industrial companies is 152,000, very close to today’s tech/telecom average.
• For example, Apple (mentioned in Irwin’s story) reported 116,000 fulltime equivalent employees as of its last annual report. Kodak in 1979 had 126,300 employees worldwide, and 80,800 in the United States. That makes them roughly the same size in terms of employment.
• Kodak employed 24,500 workers in 1929. So Kodak needed 50 years to add roughly 100,000 workers. Apple employed 17,787 workers in 2006, so Apple needed 10 years to add roughly 100,000 workers.
• The revenue of the top 10 tech/telecom companies in 2016 was 5.5 percent of U.S. GDP, compared to 5.7 percent of GDP for the top 10 industrial companies in 1979.
• Real wages for production and nonsupervisory workers in tech/telecom, digital nontech, and health have been steadily rising since 1990. By comparison, real wages for production and nonsupervisory workers in the physical nonhealth sector have been flat since 1990.
• Workers in mid-skill occupations such as office and administrative support; sales; and installation, maintenance, and repair get paid significantly more in the tech/telecom sector.
It’s been well-documented that economic dynamism for many years has been concentrated geographically–in a few tech hubs like SF and NY, in the largest urban areas where young people flock, in coastal states. This geographical concentration appears to have been a major force underlying the 2016 election, where areas left behind by economic prosperity were willing to vote for Donald Trump.
However, the latest release from the BLS shows that nonfarm payroll employment increased over the year in 342 out of 388 metropolitan areas over the last year, suggesting economic gains are spreading across the country. Moreover, Amazon and other ecommerce leaders seem to be creating hundreds of thousands of jobs in outlying areas with cheaper real estate and good access to roads.
So we did a deep dive into the numbers. Using QCEW from 2007 to 2016, we compared the economic performance of big metro areas (employment over a million) with the rest of the country. Our measures were growth of private sector jobs and establishments. A new establishment reflects either a new business opening up, or an existing business expanding.
From 2007 to 2015, the big metro areas far outperformed the rest of the country. Indeed, the rest of the country experienced shrinkage in both jobs and establishments. Economic growth was very concentrated.
But 2016 was different. In 2016, the rest of the country actually created establishments faster than the big metro areas, reflecting growth of new businesses and expansions of existing businesses. This is great news. The big metro areas still did somewhat better when it came to job growth, but the gap has narrowed enormously.
We get the similar results when we look at large and small counties (with 400K employment as the dividing line), or major tech hubs versus the rest of the country.
These results suggest that the economic pendulum may be starting to swing back, away from the biggest cities towards more evenly balanced growth, with some very interesting policy and political implications. More to come.
Apple’s introduction of the iPhone in 2007 initiated a profound and transformative new economic innovation.
While central bankers and national leaders struggled with a deep financial crisis and stagnation, the fervent demand for iPhones, and the wave of smartphones that followed, was a rare force for growth. Today, use of mobile data is rising at 50% per year globally, a stunning number that shows the revolutionary impact of the smartphone.1
More than just hardware, the smartphone also inaugurated a new era for software developers around the world. Apple’s opening up of the App Store in 2008, followed by Android Market (now Google Play) and other app stores, created a way for iOS and Android developers to write mobile applications that could run on smartphones anywhere.
One of the biggest puzzles in democratic societies across the world these days is what to do about regulation. On the one hand, regulation is important for a well-functioning society. On the other hand, too much regulation can hamper innovation and growth.
Moreover, there’s a feeling that democratic governance has broken down. We don’t seem to have a good process for coming to collective decisions.
Case in point: The “open internet” debate. When the FCC issued its Open Internet Order in March 2015, wesaidit was “time for Congress to act.” We believed and still believe that in the importance of an open internet, but the FCC was unilaterally picking the wrong approach. The imposition of Title II rules was unnecessary to keep the Internet open.
Now that the FCC may be backing from the 2015 Open Internet Order under new FCC Chairman Ajit Pai, we say the same thing: It’s time for Congress to act. These big swings back and forth in policy don’t do anyone any good.
Consumers, tech firms, ecommerce and content companies, and telecom providers all need certainty about the rules of the road, and that means legislation that enacts the open internet into law without an excessive and unnecessary regulatory structure. It may not be quick and pretty, but it’s the right way to go.
Ecommerce jobs for production and nonsupervisory workers are paid on average about 25% more than production and nonsupervisory jobs for the private sector as a whole. That’s according to BLS data.
Economic theory suggests that industries with faster productivity growth should have faster real wage growth. That’s exactly what we see in the case of the electronic shopping industry.
The figure below compares labor productivity growth in the “electronic shopping and mail order” industry (NAICS code 45411) with productivity growth in retailing as a whole. We can see an enormous difference. From 2000 to 2015, ecommerce productivity rose at an annual rate of 8.7% annually, compared to 2.6% for retailing as a whole.
This difference in productivity growth is reflected in the growth of real wages. The figure below compares average hourly wages, in 2016 dollars, for production and nonsupervisory workers in three industries or sector: electronic shopping, all retail trade, and all private sector workers. We see that production and nonsupervisory workers in electronic shopping earned an average wage of $25 per hour. That’s not bad at all–it’s about 25% higher than average hourly wages for all production and nonsupervisory workers, and about 80% higher than average hourly wages for all retail workers.
Depending how we define middle-class, these figures imply that production and nonsupervisory jobs in ecommerce
What about jobs? Since 2007, the number of retail jobs has risen by roughly 420K, while the number of “electronic shopping” jobs has risen by 140K. And that latter number is most likely an underestimate, because it doesn’t include ecommerce jobs that are part of larger retail establishments. So ecommerce is a major driver of good job creation in the retail sector.
The implication is that as more and more retail jobs shift to ecommerce, both wages and productivity will rise.
WASHINGTON— The Progressive Policy Institute (PPI) today released a new study, “A Historical Perspective on Tech Jobs,”authored by PPI Chief Economic Strategist Michael Mandel comparing job creation performance among tech companies in the United States to employment leaders of the past. The study finds that today’s big tech companies are following a similar or better employment trajectory than big job creators of the past, while average hourly wages for many tech and telecom industry jobs fall solidly into the rank of “middle-class” jobs, though the concept of “middle-class” requires greater analysis and examination.
“When we compare today’s tech leaders with the employment leaders of the past at a similar stage of development, it turns out that the job creation performance of the tech sector looks quite good,” writes Mandel. “We remember the giant corporate employers of the post World War II period, but we fail to remember how they had generally been in existence for many decades before they reached that mammoth size. And just like it takes many years for an oak tree to grow from an acorn, it turns out that employment growth simply takes time.”
PPI’s study finds that in 2016, Amazon became the fastest American company to reach 300,000 workers, hitting that mark in its twentieth year as a public company. This figure, which does not include contractors or temporary workers, represents an average employment growth rate of roughly 30 percent annually.
By contrast, General Motors reached 300,000 employees in 1941, 32 years after its 1909 founding. American Telephone & Telegraph hit the same milestone in 1926, 27 years after its 1899 absorption of the local Bell systems. And Walmart went over 300,000 associates in its 1991 fiscal year, its twenty-first year as a public company.
According to the study, Amazon is not alone; In fact, tech giants such as Google, Apple, Facebook, and Microsoft are adding jobs as fast or faster than the great job-producing companies of the past, like General Motors, AT&T, Walmart, IBM, General Electric, U.S. Steel, and Bethlehem Steel.
The study includes charts and tables highlighting the historical comparisons, as well as a comparison of average hourly wages for selected tech and telecom industries. This comparison previews an upcoming paper on the quality and wages of tech and telecom jobs, including upstream and downstream jobs.
Amazon just announced that it would add more than 100,000 fulltime jobs in the US over the next 18 months. That’s fantastic.
But even before that announcement, it turns out that Amazon was the fastest US company to reach 300,000 jobs. That’s based on a new paper we are releasing today, called “A Historical Perspective on Tech Job Growth.” Here’s the beginning of the paper.
General Motors reached 300,000 employees in 1941, 32 years after its 1909 founding. American Telephone & Telegraph hit the same milestone in 1926, 27 years after its 1899 absorption of the local Bell systems. And Walmart went over 300,000 associates in its 1991 fiscal year, its 21st year as a public company.
But in 2016, Amazon became the fastest American company to reach 300,000 workers, hitting that mark in its 20th year as a public company. This figure, which does not include contractors or temporary workers, represents an average employment growth rate of roughly 30% per year. That’s an amazing growth rate.
But Amazon is not alone. In fact, tech giants such as Google, Apple, Facebook and Microsoft are adding jobs as fast or faster than the great job-producing companies of the past, like GM, AT&T, Walmart, IBM, GE, US Steel, and Bethlehem Steel.
Consider this: Twenty years after its 1892 founding, General Electric had 41,000 employees. Google beat that mark in 2012, only 8 years after its 2004 initial public offering.
En los Estados Unidos hemos estado, con mucha razón, obsesionados con el resultado de las elecciones presidenciales. Pero el mundo sigue girando. Por ejemplo, la semana pasada Colombia ratificó untratado de pazhistórico entre el gobierno y el movimiento rebelde. PPI tuvo el privilegio de estar en Bogotá este octubre, donde realizamos unevento sobre la Economía App, el cual fue muy difundido, y describió cómo la Economía App de Colombia ha generado más de 80.000 puestos de trabajo.
Hay que felicitar al presidente de Colombia, Juan Manuel Santos por su éxito. Al mismo tiempo, él ha presentado una importante reforma tributaria que simplifica el sistema de impuestos corporativos mientras que recauda nuevos fondos. No es sorpresa que la medida de reforma tributaria sea controversial. Por ejemplo, lasfranquiciasde la cadena de sandwiches Subway reclaman que el incremento en los impuestos puede terminar con el negocio.
De mayor impacto, la reforma tributaria de Santos afecta directamente al sector digital de Colombia y en particular a la Economía App. Incrementaría el IVA en dispositivos (teléfonos, tablets y computadoras) del 16 al 19% – solo las tablets y las computadoras menos costosas estarían exentas del IVA. La reforma ialzaría el IVA sobre los servicios móviles de datos del 16 al 19% y agregaría un 4% adicional de impuestos al consumo (un total de 23%). Finalmente, la reforma tributaria impondría un IVA sobre todo el contenido y servicios digitales que sean provistos por proveedores de origen extranjero.
Estas medidas tributarias podrían potencialmente restringir la continuación del crecimiento de la Economía App de Colombia, la cual depende de dispositivos asequibles y el banda ancha móvil, y del acceso a apps provenientes de cualquier parte del mundo. Más aún, esto podría afectar negativamente la competitividad en el resto de la economía, ya que la Economía App es mucho más que solo entretenimiento y aplicaciones de juegos. De hecho, se desarrollan y usan aplicaciones por grandes multinacionales, bancos, compañías de medios audiovisuales, tiendas minoristas, y gobiernos.
Uno de los cambios más grandes que se aproximan es el Internet de las Cosas, el cual es el uso de Internet para ayudar a controlar objetos físicos y nuestro entorno físico. Los agricultores usarán cada vez más aplicaciones que ayuden a su producción agricultural, los enfermeros y doctores usarán aplicaciones para administrar el cuidado de los pacientes, y los productores usarán aplicaciones para controlar sus fábricas.
A nivel global, los países exitosos digitalmente como Vietnam y China aplican tasas de IVA relativamente bajas a los datos y servicios móviles para estimular el uso (Vea esteinformereciente sobre la inclusión digital y los impuestos sobre el sector móvil).
Finalmente, como hemos mencionado en nuestra publicación de octubre de 2016:
Si los legisladores son serios con respecto a fomentar un ecosistema dinámico para nuevas empresas y la Economía App, entonces continuar con las políticas que apoyen la Economía App será lo que ayudará a Colombia a participar en la revolución móvil global como productor más que como consumidor. Aplicar demasiadas restricciones costosas sobre la Economía App de Colombia podría desviar el crecimiento hacia otro lugares. (énfasis añadido)
We in the US have been understandably obsessed with the outcome of the presidential election. But the rest of the world keeps moving forward. For example, last week Colombia ratified a historicpeace treatybetween the government and the rebel movement. PPI was privileged to be in Bogota just this October, where we held a widely publicizedApp Economy event, describing how Colombia’s App Economy has generated over 80,000 jobs.
Colombia’s President Juan Manuel Santos should be congratulated for his success. At the same time, he has introduced an important tax reform measure that simplifies the corporate tax system, while raising new funds. Not surprisingly, the tax reform measure is controversial. For example,franchisesof the Subway sandwich chain are complaining that higher taxes will drive them out of business.
More consequentially, the Santos tax reform takes direct aim at Colombia’s digital sector and App Economy in particular. It would raise the VAT on devices (phones, tablets and computers) from 16 to 19% – only the least expensive tablets and computers would be exempt from the VAT. The tax reform would raise VAT on mobile data services from 16 to 19% and add an additional 4% consumption tax (total of 23%). Finally, the tax reform would charge VAT on all digital content and services provided by suppliers based overseas.
These tax measures could potentially restrict continued growth of Colombia’s App Economy, which depends on affordable devices and mobile broadband, and access to apps from all over the world. Moreover, this could hamper competitiveness in the rest of the economy, since the App Economy is far more than just entertainment and game apps. In fact, apps are developed and used by major multinationals, banks, media companies, retailers, and governments.
One of the biggest changes coming is the Internet of Things, which is the use of the Internet to help control physical devices and our physical environment. Farmers will increasingly use apps to aid their agricultural production, nurses and doctors will use apps to manage patient care, and manufacturers will use apps to control their factories.
Globally, digitally-successful countries such as Vietnam and China apply relatively lower VAT rates to mobile data and services to boost uptake (See this recentreporton digital inclusion and mobile sector taxation).
Finally, as we note in our October 2016 paper:
If policymakers are serious about fostering a dynamic startup ecosystem and App Economy, then continuing with the types of policies that facilitate App Economy growth will allow Colombia to participate in the global mobile revolution as a producer rather than a consumer. Putting too many costly restrictions on Colombia’s App Economy could divert the growth elsewhere. (emphasis added)
Everyone has seen this chart, or something similar, recently. It tracks the production of the manufacturing sector over the past twenty years. Looks pretty good, doesn’t it? Since 1996 manufacturing industrial production has risen almost 40%, despite intense global competition.
But now let’s add another line to the chart–this time, manufacturing industrial production after we remove tech manufacturing. That’s the blue line in the chart below.
What’s changed? It turns out that once we have taken out tech manufacturing–computers, communication equipment, and semiconductors–the output of the rest of manufacturing has only risen by 5% over the past 20 years, and is well below its 2007 peak.
Over the same period, the output of tech manufacturing has risen by a factor of 20, or 2000%, as least according to Federal Reserve Board estimates (and they have some of the best economists around).
The same divergence shows up in productivity growth. I do a simple calculation, dividing manufacturing industrial production by the number of fulltime equivalent workers in manufacturing, and then I do the same for non-tech manufacturing. Over this twenty year period, it looks like this:
The top line–the manufacturing industrial production per worker–shows that productivity in manufacturing has almost doubled over the past twenty years. But roughly half of that gain is due to the tech sector. Once we remove tech production from manufacturing, the 20-year productivity gain falls from 93% to 45%. And while that 45% gain in productivity is nothing to sneeze at, it amounts to only 1.9% annually.
Let’s break down manufacturing labor productivity growth by industry. These figures come from the BLS.
We see that computer and electronic products are far and away the best performing manufacturing industry, in terms of productivity growth. Then it falls off quickly to transportation equipment (motor vehicles and aircraft), which is the main user of robots. Then productivity growth across the rest of manufacturing ranges from mediocre to downright uninspiring.
In a post-election post we showed how American workers are being failed by the physical industries, which had dramatically underperformed the digital industries across a wide range of metrics, including productivity, compensation, and job growth. This sharp and growing economic gap between the Digital Nation and the Physical Nation had profound political consequences, since the Physical Nation is still triple the size of the Digital Nation.
In this post we look at the economy from the consumer side.
1. Per capita real consumption of physical goods and services, outside of housing and health care, has grown by only 10% since 2000, or an average of 0.6% annually. By comparison, per capita real consumption of digital goods and services has skyrocketed, growing by 64%, or 3.4% annually.
2. In other words, to the extent that consumer living standards have been rising, the gains have been mainly driven by digital goods and services. For example, per capita real consumption of communication services–including internet, wireless, and cable–is up by 60% since 2000. This calculation is based only on government data, without taking into effect possible unmeasured gains in consumer surplus.
3.. By contrast, in the physical sector per capita real purchases of motor vehicles and parts has risen by only 6% since 2000, or only 0.4% per year. Similarly, per capita real purchases of food and beverages for home use has risen by only 4%, or 0.3% annually. It should be noted that food processing is a manufacturing industry which has shown no labor productivity growth in the past ten years, .
4. The Digital Nation is mainly characterized by falling or flat consumer prices, while the Physical Nation is mainly characterized by rising consumer prices. In the digital sector, consumers spend less to get more, while in the physical sector, consumers spend more to get less. The price of communication services is basically flat since 2000, allowing even low and middle-income households to participate in the App Economy.
5.On the other hand, low- and middle-class households have battled with the rising price of food, housing, healthcare, and transportation. The nominal incomes of middle class households (middle quintile) have risen 34% since 2000. But food prices have risen 41%; the price of housing, fuels and utilities (except phone and cable) is up 50%; and the price of food services and accommodations is up 50%. And while the price of new motor vehicles has been relatively flat since 2000, the price of gasoline is up 65%; the price of auto maintenance and repair is up 53%, and the price of taxicabs is up a stunning 74%.
6. The rate of inflation has actually accelerated in the Physical Nation. As the chart above shows, the price of physical goods and services, outside of health and housing, rose at a 1.9% rate in the period 2000-2015, compared to a 1.3% rate in the 1990s.
7. The digital sector has performed extremely well for consumers over the past 15 years. From the policy and political perspective, our focus should be on why prices rose so fast in the physical sector since 2000 compared to the previous decade. The price increases for physical goods and services helps explain why low- and middle-class households have been struggling, and why they are so angry.
Japan has the potential to play a key role in the next global economic boom, which will be based around the application of new mobile networks to physical industries such as manufacturing and transportation to boost consumer welfare, and increase productivity, real wages and job growth.
Indeed, Prime Minister Shinzo Abe’s emphasis on structural reform as the “third arrow” of
Abenomics can help lead the way to such a transformation. However, the government’s increased willingness to intervene in the mobile sector—such as issuing guidelines on how carriers should price handsets–runs the risk of going against the spirit of Abenomics and structural reform.
In this paper we lay out the reasons why increased Japanese government intervention in the mobile sector will likely hurt consumers in the long run, rather than help them, and slow down the innovation and investment needed to be a global technology leader.
