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Japan’s App Economy

Posted on November 17, 2016 by The Progressive Policy Institute

The introduction of Apple’s iPhone in 2007 initiated a profound and transformative new economic innovation. Today, less than a decade later, there are 4 billion smartphone subscriptions globally, an unprecedented rate of adoption for a new technology. Mobile data usage is rising at 55% per year, a stunning number that shows its revolutionary impact.

More than just hardware, the smartphone also inaugurated up a new era for software developers around the world. Apple’s launch 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 from anywhere in the world, with the ability to sell and distribute them globally.

This paper examines the economic impact of the App Economy in Japan. We estimate that App Economy employment in Japan totaled 579,000 as of April 2016.

The Physical Nation vs The Digital Nation

Posted on November 13, 2016September 18, 2024 by The Progressive Policy Institute

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

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).
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.
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

Report: Android Helps Create 1.2 million App Economy Jobs in Europe

Posted on November 10, 2016 by The Progressive Policy Institute

BRUSSELS—According to research by the Progressive Policy Institute (PPI), the Android mobile operating system has helped create 1.2 million App Economy jobs in Europe. The figure comes from a PPI policy memo, “The App Economy in Europe: Leading Countries and Cities,” which covers the 28 EU countries plus Norway and Switzerland. Android-related App Economy jobs are found in every European country, led by the United Kingdom and Germany. Indeed, Europe has more Android-related App Economy jobs than the United States.

“App Economy jobs have been growing at a rapid pace, even as the overall European labor market is still weak,” says Dr. Michael Mandel, PPI’s Chief Economic Strategist, who wrote the report and developed the research methodology. “These App Economy jobs didn’t exist 8 years ago.”

“Most European policymakers and regulators don’t have a good grasp of the importance of App Economy employment,” says Michael Quigley, director of PPI’s European office in Brussels. “The latest election results tell us that voters don’t want more regulation–they want a chance to participate in New Economy growth.”

App Economy employment includes jobs involved with building, maintaining, and supporting mobile apps, plus a conservative estimate of spillover jobs. These jobs are estimated using a methodology based on analyzing the universe of online jobs postings.

PPI recently announced the opening of an office in Brussels to serve as its European base, a sign of its commitment to strengthening the transatlantic dialogue between the U.S. and our European partners on data-driven innovation, competition policy, trade, taxation and other issues at the center of the transatlantic relationship.

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Learning from Google Fiber

Posted on November 1, 2016September 18, 2024 by The Progressive Policy Institute

Google’s decision to pause its roll-out of Google Fiber to new cities is an important data point in our understanding of both the economics of telecom and the economics of innovation. The announcement said that:

In terms of our existing footprint, in the cities where we’ve launched or are under construction, our work will continue. For most of our “potential Fiber cities” — those where we’ve been in exploratory discussions — we’re going to pause our operations and offices while we refine our approaches.

Google should be applauded for its willingness to take a chance on laying fiber to the home—such big bets are the only way that innovation happens. Too many companies around the world choose to play it safe and avoid putting money into “moonshots.”

However, Google’s move emphasizes that telecom infrastructure investments cost big money and are risky. A company with one of the deepest pockets in the world—and a long-established willingness to innovate—has been forced to reassess its strategy. Advocates such as Susan Crawford have claimed in the past that the roll-out of Google Fiber proves that it is “cost-effective to install and sell fiber connectivity.” But by the same token, Google’s pause confirms that gigabit networks to the home are expensive, as incumbent providers have been saying, and not yet a winning proposition for most consumers.

Regulators need to remember that telecom infrastructure investments are not only large, but carry significant technological and business risk. Major telecom providers such as AT&T, Verizon, and Comcast have been at or near the top of our “Investment Heroes” list year after year precisely because they are willing to take those risks. And the risks will only get larger. No one is sure yet the best way to connect fiber backbones to homes and businesses, and what the business model will look like. For example, will fixed 5G networks be the best way to bridge the “last mile” to the home? It’s tough to say, given that the technical standards have not yet been set. A wrong bet could lead to billions of dollars in losses.

But there’s a broader point as well about size and innovation. Economists have long debated whether large companies or small companies contribute more to innovation. As a general rule, the answer is “it depends.” As we wrote in our policy memo, “Scale and Innovation in Today’s Economy”:

the current U.S. economy is dealing with a particular set of conditions that will make scale a positive influence on innovation. First, economic and job growth today are increasingly driven by large-scale innovation ecosystems, ….These ecosystems require management by a core company or companies with the resources and scale to provide leadership and technological direction. This task typically cannot be handled by a small company or startup.

Second, globalization puts more of a premium on size than ever before. A company that looks large in the context of the domestic economy may be relatively small in the context of the global economy. In order to capture the fruits of innovation, U.S. companies have to have the resources to stand against foreign competition, much of which may be state supported.

Finally, the U.S. faces a set of enormous challenges in reforming large-scale integrated systems such as health, energy, and education. Conventional venture-backed startups don’t have the resources to tackle these mammoth problems. Only large firms have the staying power and the scale to potentially implement systemic innovations in these industries.

These considerations raise certain questions about how regulators—in the US, Europe, and Japan—should think about the role of scale. Scale by itself should not be viewed an impediment to innovation. Small firms are essential to innovation, but big firms have an essential role to play as well.

Trade and Good Jobs for the 99 Percent: Debating Trade, the Elites, and Jobs

Posted on October 31, 2016 by The Progressive Policy Institute

Opponents of trade and trade agreements like the Trans-Pacific Partnership (TPP) often frame the trade debate as a battle between “the elites” and average Americans, especially American workers.

Trade skeptics charge that America’s pursuit of rules-based, open trade is essentially an exercise that’s by and for big multinationals and the Wall Street one percent, while leaving everyday American workers holding the bag. Critics like Donald Trump and Bernie Sanders claim that Americans would be better served by upending trade pacts like NAFTA, scrapping proposed deals like the TPP, and jacking up tariffs—including Trump’s proposed duties of 45 percent on Chinese imports and 35 percent on goods from Mexico. These tactics, they argue, would pressure trade partners and U.S. multinationals and “bring back” American jobs

But would a shift toward protectionism really help the 99 percent? Would such policies support more and better jobs for middle class workers? Guarantee a more prosperous and inclusive economic future for everyday Americans? If not, what policies would?

Tracking Colombia’s App Economy

Posted on October 13, 2016 by The Progressive Policy Institute

All around the world we are seeing the rise of the App Economy— jobs, companies, and economic growth created by the production and distribution of mobile applications (“apps”) that run on smartphones. Since the introduction of the iPhone in 2007, the App Economy has grown from nothing to a powerful economic force that rivals existing industries.1

In this paper we examine the production and distribution of mobile apps as a source of growth and job creation for Colombia. We find that Colombia had over 83,100 App Economy jobs as of September 2016, including a conservative estimate of spillover jobs. What’s more, Colombia’s connectivity with the global economy, particularly the United States, gives the country the potential to add many more App Economy jobs in the near future.

Going forward, Colombia has several important advantages in positioning itself as a hub for domestic and export app development. Colombia benefits from a growing economy in a time of economic volatility in the region. For 2015, Colombia showed annual growth of 3.1 percent, while the overall Latin American economy contracted. This is a slowdown compared to the growth Colombia experienced in years 2010-2014, due in large part to external factors: the decrease in global demand, particularly from China; and falling oil prices, with petroleum accounting to nearly half of the country’s total exports.3 Growth is expected to slow further in 2016, with economic and political uncertainty, including the ongoing peace process and tax reform.

The Real Story of the Tech Job Boom: A Response to the WSJ

Posted on October 12, 2016September 18, 2024 by The Progressive Policy Institute

Suppose you were counselling your college-age child about what fields to consider. Where would you tell them to start?

The short answer: Tech and health. Just look at the numbers: Since 2007, when the current tech boom started, employment in computer and mathematical occupations–including software developers and network administrators–has grown by more than 900,000 jobs. Employment in healthcare occupations–including physicians, nurses, skilled medical technicians, and support occupations–has risen by almost 1.9 million jobs. Everything else: Zilch.

That’s why it was a bit strange to read today’s WSJ piece, entitled “America’s Dazzling Tech Boom Has a Downside: Not Enough Jobs”. The gist of the article is summed up in the lede:

The technology revolution has delivered Google searches, Facebook friends, iPhone apps, Twitter rants and shopping for almost anything on Amazon, all in the past decade and a half.

What it hasn’t delivered are many jobs.

Here’s my problem with their conclusion: The authors restricted themselves to looking at employment at tech companies, and tech industries as defined by the BLS. That makes sense if we think about tech like it was a manufacturing industry, where the jobs are concentrated in factories that can be easily tracked by government statisticians.

However, a large number of jobs created by the tech boom are outside the tech industry, and indeed, outside the conventional tech hubs. Instead, many people working in IT are in mining, transportation, government, finance, education, media, healthcare, and retail. The tech boom has spread across the entire economy, lifting employment far from Silicon Valley.

Some of these computer and mathematical occupation jobs are related to the App Economy, which we have discussed elsewhere. Indeed, creating and maintaining mobile apps has become a significant source of employment for the US and other countries. This includes ensuring the cyber security of mobile apps, which is increasingly important for banks and other companies that are worried about being hacked. These jobs are only going to grow.

Here’s a chart that puts job growth into three buckets: computer and mathematical occupations; healthcare practitioner, technical, and support occupations; and all other occupations. We see that since 2000, computer and mathematical occupations are up 32%, and healthcare occupations are up 47%. Everything else? Only a 5% gain.

What if we start from 2007, when the current tech boom really took off, propelled by Apple’s introduction of the iPhone and the mobile revolution? Since 2007, employment computer and mathematical occupations is up 27%, and jobs in healthcare occupations is up 18%. Meanwhile, the rest of the economy has produced no net new jobs at all.

So, of course that number is heavily influenced by the job losses in maufacturing production workers. What if we just focus on managers? Even there, the growth has been much faster in tech and health. Since 2007, the number of computer and information systems managers is up 40%. The number of medical and health services managers is up 19%. For all other types of managers, the growth is only 8%, or only 1% per year.

Now, there are all sorts of reasons to worry if these trends will continue. The tech boom could come to an end, pressures on health care costs could slow job growth. But at least for now, if your kid is looking for growth sectors, tech and health are the name of the game.

A Note From PPI President Will Marshall on Obama’s “Way Ahead”

Posted on October 6, 2016September 18, 2024 by The Progressive Policy Institute

I’d like to draw your attention to this extraordinary essay by President Obama in The Economist. It stands out for two reasons. First, it provides what has been sorely missing from the bizarre 2016 presidential race – a progressive roadmap for restoring America’s economic dynamism.

Second, President Obama’s approach to reversing nearly two decades of slow economic growth is uncannily parallel to the Progressive Policy Institute’s policy blueprint for pro-growth progressives: Unleashing Innovation and Growth: A Progressive Alternative to Populism.

Both documents reject populist claims that the U.S. economy is a “disaster” or a game hopelessly rigged by Wall Street or billionaires and focus instead on the main driver of meager wage gains and growing inequality – slumping productivity growth. As the President notes, one reason for the slowdown is lagging private investment – a problem PPI also has been highlighting in multiple studies of the nation’s “investment drought.”

We also agree with many of the President’s key prescriptions for putting America back on a high-growth path. To highlight just a few:

Pro-growth tax reform, including lowering business taxes and closing special interest loopholes.
Expanding U.S. exports and passing the Trans-Pacific Partnership to strengthen global trade rules.
Lowering college costs, not just expanding education subsidies.
Making work pay by expanding tax credits for low-income workers.

Why is all this important? Because despite all the rhetoric about “inclusive growth,” in this election, we’re hearing a lot more about distributing existing wealth than creating new wealth. To speak to the hopes and aspirations of working families, Democrats need to balance that equation.

Rising Labor Costs Accounted for 47 percent of Increased Personal Health Care Spending in 2015

Posted on September 30, 2016September 18, 2024 by The Progressive Policy Institute

According to PPI estimates, rising labor costs accounted for almost $65 billion in added health care costs in 2015, or 47 percent of the total increase in personal health care spending (as reported by the latest projections from the actuaries at the Centers for Medicare and Medicaid). By contrast, IMS reports that net spending on prescription drugs rose by only $24 billion in 2015, or 18 percent of the rise in personal health care spending.

This result, which updates our previously published data for 2014, fights the prevailing narrative that healthcare spending is primarily driven by rising drug prices.. Instead, the big increase in labor compensation in 2015 is mainly being impelled by the rapid growth of health care employment. The number of workers in the nation’s hospitals, physician offices, and nursing homes increased by 429,000 in 2015, compared to an annual average of 226,000 for the previous 5 years.

Unfortunately, this trend of rapidly rising healthcare employment driving overall spending appears to have accelerated in 2016. Healthcare employment in the 12 months ending July 2016 was more than 500,000 above its year earlier level, suggesting that healthcare labor costs will surge even more in 2016.

Meanwhile data from the BEA seem to show the pace of pharmaceutical spending slowing in 2016. Consumer spending on prescription drugs in August 2016 was 4.3% over a year earlier, less than half as fast as in 2015. There’s no guarantee that this slower pace will continue for the rest of 2016, but so far it’s a good sign.

The FCC and the Set-Top Box Rule: A Headscratcher

Posted on September 29, 2016September 18, 2024 by The Progressive Policy Institute

The FCC chose to ‘delete‘ (their word) discussion of its “set-top box rule” from today’s meeting. As we wrote two weeks ago, the FCC’s proposed rule appeared to put the commission in the position of rewriting copyright law and setting up a licensing board for apps. The licensing board for apps is particularly disturbing, because it represents an entirely new layer of regulation on an innovative sector that has produced more than 1.6 million jobs in the US alone.

But we’re left with a headscratcher. The truth is that no one–including members of Congress–really knows at this point what Chairman Tom Wheeler and the FCC commission are thinking, or how the FCC has modified its plan. Rather than having to guess, we favor transparency–the FCC should announce its current proposal, and give an opportunity for public comment, meaningful review by Congress, and real economic analysis of the rule’s impact on jobs and innovation. That’s the right way to move forward.

A Big Deal for Small Business: Seven Stories of How the Trans-Pacific Partnership Would Boost America’s Small Exporters

Posted on September 26, 2016 by The Progressive Policy Institute

When Americans think of trade, we tend to focus on large, world-leading multinationals. We usually don’t think of a small food exporter like Pacific Valley Foods, which started in a couple’s home office, or of The Pro’s Closet, an online global reseller of used biking gear founded by a pro cyclist. But, like these businesses, 98 percent of U.S. exporters are actually small and medium-sized enterprises (SMEs), and these smaller traders account for over one-third of U.S. exports.

SMEs that export are also economic powerhouses—they hire more employees, pay higher wages, and are more resilient and productive than their non-exporting counterparts. And, since only about five percent of American SMEs currently export, the United States has significant untapped potential to drive growth and support good jobs by increasing small business trade.

In a previous issue brief, we explained how the Trans-Pacific Partnership agreement (TPP) would boost U.S. small business exports by clearing away significant foreign trade barriers and by mandating reforms that would make exporting fairer, faster, cheaper, and more certain for America’s smaller firms.

Does the FCC Have the Authority to Rewrite Copyright Law and License Apps?

Posted on September 13, 2016September 18, 2024 by The Progressive Policy Institute

Does the Federal Communications Commission (FCC) have the authority to rewrite copyright law and license apps? This Thursday the Senate Commerce Committee will hold an oversight hearing for the FCC, giving the committee members the opportunity to ask FCC Chairman Tom Wheeler this very relevant question.

Wheeler has proposed a plan by which payTV operators will be required to offer their shows through an app, which can be used on any device. The goal of this plan is to wean consumers off set-top boxes and home television sets, and encourage them to watch their favorite shows on their phones or tablets.

In the process, however, Wheeler is also mandating that the copyright holders for movies and television shows can no longer control where their material appears. That dramatically changes established copyright law, which gives copyright holders effectively unlimited discretion over how and where to sell and distribute their content.

Moreover, the FCC would set up a licensing board to certify the apps, setting an unfortunate precedent where any app that provided video content could presumably come under government control about how and where it could provide that content (or else it would be easy to circumvent the FCC’s rules). In effect, the FCC is setting itself up as the gatekeeper of the App Economy, which has been a tremendous job producer so far for the United States.

As we discussed in our 2015 paper, “Copyright in the Digital Age: Key Economic Issues,” significant changes in copyright law should be evaluated by three metrics:

Do they promote the creation of new artistic works?
Do they allow creators and authors to benefit from their artistic endeavors?
Do they stimulate jobs and economic growth?

There is no evidence that the FCC did any economic analysis of these copyright metrics to justify its proposal. Moreover, app licensing by the government could dramatically slow down the rate of innovation in apps

PPI is in favor of competition in the set-top box market, including the delivery of content through apps. But the FCC’s attempt to squeeze out set-top boxes by rewriting copyright rules and licensing apps has the potential to have wide-reaching negative economic consequences.

The App Economy in Germany – An American Perspective

Posted on September 8, 2016September 18, 2024 by The Progressive Policy Institute

The introduction of the iPhone in 2007 created a profound new economic force. There are now nearly 2 billion smartphone users worldwide, an unprecedented rate of adoption for a new technology. Equally important, Apple’s unveiling of the App Store in July 2008 ignited a global App Economy boom. This revolutionary concept enabled software developers to write mobile applications from anywhere in the world, with the ability to sell and distribute them globally.

Marshall & Gerwin for The Hill, “Facing the future on trade: Democrats must reject anti-trade obstructionism”

Posted on September 7, 2016 by The Progressive Policy Institute

Anti-trade populists are hell-bent on locking Democrats into a future of rigid opposition to trade deals like the Trans-Pacific Partnership. They recently failed in efforts to include a plank in the Democratic Party Platform that would have committed Democrats to the decidedly undemocratic principle of never, ever agreeing even to bring TPP to a vote—either in this Congress or any future one. Now, they are back, pressuring Democratic candidates and Members to go on record against TPP—a key priority for President Obama—and any vote on TPP in the lame duck session of Congress.

Pro-growth progressives should stand up and fight this ill-conceived attempt to make dogmatic opposition to trade agreements a new political loyalty test. The last thing America needs is a Democratic version of the Republicans’ infamous Norquist Pledge on taxes, which has paralyzed Washington’s ability to compromise and make sound fiscal policy.

Killing TPP would deprive policy makers of a potent tool for stimulating jobs and growth, and for augmenting American influence and leadership in the Pacific East. Make no mistake: blanket hostility to trade agreements is a formula for slow growth, lagging innovation and a fatal loss of U.S. economic dynamism.

Continue Reading at The Hill.

Mexico: The Rise of the Mexican App Economy

Posted on August 25, 2016 by The Progressive Policy Institute

All around the world we are seeing the rise of the App Economy—jobs, companies, and economic growth created by the production and distribution of mobile applications (“apps”) that run on smartphones. Since the introduction of the iPhone in 2007, the App Economy has grown from nothing to a powerful economic force that rivals existing industries.

In this paper, we examine the production and distribution of mobile apps as a source of growth and job creation for Mexico. We find that Mexico had over 225,000 App Economy jobs as of March 2016. What’s more, Mexico’s connectivity with the global economy, particularly the United States, gives the country the potential to add many more App Economy jobs in the near future.

Mexico has long benefited from strong relationships with its global trading partners and has been an enthusiastic supporter of the proposed Trans-Pacific Partnership agreement. An important next step for Mexico is to seize the opportunities provided by the new economy, realizing its potential for creating new export markets. Trade is now much more than just traditional goods and services—it is also digital goods, such as mobile apps.

Mexico is also benefiting from a relatively stable economy in a time of volatility in the region. Mexico has managed to register slow but steady growth rates over the past few years. For 2015, Mexico showed annual growth of 2.5 percent, while the overall Latin American economy contracted by 0.3 percent. As the global economy stabilizes and Mexico continues its steady growth amongst a region plagued with uncertainty, the country can further strength its position as an economic leader in Latin America.

The Rise of the Mexican App Economy

El Surgimiento de la App Economy Mexicana