issue: Labor

Can Obama Redefine the Role of College?

Posted on by The Progressive Policy Institute

President Obama’s speech in Buffalo yesterday launched a new conversation on the role of higher education as a platform for social and economic mobility. The speech represents a major policy shift on higher education policy toward a performance-based funding approach that holds colleges accountable for how graduates do in the job market. Though it is true such a formula for assessing college performance may be imperfect, changing how colleges think about their role in workforce preparation is essential. For young Americans to succeed in today’s global economy we must smartly invest in higher education that will enhance our competitiveness.

In the speech, President Obama finally acknowledged the current structure of the federal student aid program – a structure that now doles out over $100 billion in new loans annually while asking few questions – is unsustainable. In this context he unveiled a new proposed strategy for federal student aid distribution that holds both colleges more accountable by creating a new ranking that rewards schools for low student debt levels and high job placement rates. Students will also be held more accountable by having to show good grades from the year before to get next year’s loans.

President Obama is right to propose drastic changes to the federal student aid program. Federal aid for higher education has quadrupled in size over the last decade, yet the program itself remains essentially unchanged from its establishment in 1965. And now is the right time: the Higher Education Act, the legislation that determines eligibility criteria for federal student aid programs, is set for reauthorization at the end of this year. Hopefully this new proposal sets the tone for a serious review of current programs.

The current federal student aid party cannot go on forever. Doling out essentially unlimited federal aid to colleges will only delay an industry reorganization and consolidation that is both necessary and inevitable, especially at second and third tier schools. In its current form federal student aid subsidizes ineffective schools and transfers those costs to its graduates, who likely will struggle most to repay the average $26,000 per borrower student debt. The fact that President Obama reckoned the government would end up footing the bill for these schools shows he probably agrees. It’s time for higher ed to fully embrace the cost-saving education technology revolution that is finally gaining traction.

Early dissenters of the proposed changes to federal aid distribution, including the American Council on Higher Education, a major higher ed lobbying group, are concerned the ranking will overemphasize college’s role in job preparation. But isn’t that exactly what college’s major role is, and what colleges should be held accountable for?  Perhaps such dissenters should explain their view to the 50 percent of young college graduates who are currently underemployed or unemployed and try again.

PPI Releases New Report on U.S. Energy, Motor Vehicles Attracting Foreign Investors

Posted on by The Progressive Policy Institute

U.S. Energy, Motor Vehicles Attracting Foreign Investors

WASHINGTON — Seeking to capitalize on America’s shale gas boom, foreign companies are making major investments in the U.S. energy sector, a new PPI study shows. And while foreign investors still see making motor vehicles in the United States as good business, they seem less willing to place their bets on America’s greatly heralded manufacturing renaissance.

These are key findings of “Non-US Investment Heroes: Foreign Companies Betting on America” by PPI Economist Diana G. Carew. In the first study of its kind, Carew identified the top non-US based companies in three key industries – energy, motor vehicles, and industrial manufacturing – by their level of U.S. investment in 2011 and 2012.

In energy, the top company investing in America by their cumulative 2011 and 2012 capital expenditures was BP, followed by Shell, Statoil, and Total.

In the two remaining industries, we could not produce a ranking due to limitations in publicly available financial data. Still, we identified six motor vehicle and industrial manufacturers that had significant U.S. investment in 2011 and 2012 (listed in alphabetical order): BMW, Honda, Robert Bosch, Samsung, ThyssenKrupp, and Volvo. To obtain these results, PPI analyzed publicly available financial statements.

In general, the report found that foreign direct investment in the United States is still well below its pre-recession high of $310 billion. “We need investment from overseas to propel the U.S. economy, but we continue to be stuck in an investment drought,” Carew says.

However, as Carew notes, a paucity of good data on investment from many non-U.S. based companies, particularly those outside of the energy sector, presents a challenge for designing effective U.S. investment policy.

This report is part of our “Investment Heroes” series, and follows from our 2012 report “U.S. Investment Heroes: Who’s Betting on America’s Future?”

Unpaid Internships Aren’t so Black and White

Posted on by The Progressive Policy Institute

Does having a paid internship make the difference between getting a job and sitting home after college? It depends.

Unpaid internships have been criticized as a waste of students’ time,  effort, and money. Now it appears holding an unpaid internship won’t even help a student on the job market. An upcoming study from the National Association of Colleges and Employers (NACE) on the graduating class of 2013 found 63.1% of graduating college students who had paid internships received a job offer, compared with 37.0% of those who took only unpaid internships and 35.2% of students who had taken no internships.

However, although job offers may seem like a straightforward measure of an internship’s impact, but the reality is not so black and white. There are many factors that influence whether a college graduate has a job offer at graduation, of which internships are just one. Moreover, there is also a wide variety of internships, and an equally diverse number of reasons students chose to take them.

Certainly not all internships are created equal.  For some employers, internships are explicitly used as a screening process for new hires. These employers may invest more time and effort to see which interns would make good employees, and so provide interns with substantive tasks and compensation.

Such ‘screening’ internship programs make the most sense for employers who continually need new hires with a technical skill set. So it is little surprise that the majority of paid internships are for majors who are typically hired in large numbers at entry-level. As the chart below shows, engineering majors, computer science majors, engineering technology majors, and business- related majors were far more likely to have a paid internships- with comparatively high wages- than other majors. The data is from Intern Bridge’s 2012 survey of college students.

But by itself this chart can be misleading.  Some majors’ career paths are inherently different than others, and this is not reflected in either the Intern Bridge or NACE data. For example, neither one reports the percent of students who intend to go straight to graduate school rather than enter the workforce. For some students, the primary purpose of an internship is not to receive an immediate job offer, but rather to build a professional network or explore a particular field of work.

The reality is the payoff for participating in an internship – whether paid or unpaid – varies from student to student. The greatest benefit of an internship is not measurable in wages, but by how much it furthers a student’s career aspirations. It would be a mistake for college students to use the NACE and Intern Bridge survey results as an excuse to sit home and do nothing. That will almost assuredly hurt their job prospects.

 

Non-US Investment Heroes: Foreign Companies Betting on America

Posted on by The Progressive Policy Institute

Foreign Direct Investment (FDI)—investment in the United States by foreign-based companies—has yet to recover to pre-recessionary levels. In 2011, FDI remained 25 percent below 2008 levels, and preliminary 2012 figures suggest an even further drop.

Indeed, almost 6 years after the Great Recession began, the United States continues to wallow in an investment drought. Such weak investment—both from U.S. and non-U.S. based companies—is almost certainly a key factor behind today’s slow-growth economy.

Investment is a critical part of any high-growth strategy. It is the building block for innovation and economic growth. Investment that increases U.S. production— of goods, services and data—creates high-skill, globally competitive jobs and raises incomes.

This report highlights several important facts about foreign investment that shed light on sectors of the U.S. economy. First, energy is one of the fastest growing areas for foreign investment in America, just as it is for U.S.-based company investment. Official data shows foreign direct investment in “petroleum”—oil and gas extraction, refining, and distribution—more than doubled from 2008 to 2011.

Second, our research shows the United States continues to be an important platform for non-U.S. motor vehicle manufacturers. Moderate investment by non-U.S. motor vehicle manufacturers to upgrade and expand existing production lines show the U.S. market continues to be an important part of their business model.

Third, relatively low investment by non-U.S. industrial manufacturers suggests the greatly heralded manufacturing renaissance may not be as robust as some believe. Our research shows companies in this sector engaged in relatively little U.S. investment activity, and in some cases previous U.S. investments were unsuccessful. Such lackluster investment should be considered by policymakers on federal and state levels designing pro-investment growth strategies that target manufacturing.

Finally, a lack of good data on investment from many non-U.S. based companies, particularly those outside of the energy sector, presents a challenge for designing effective U.S. investment policy. Not having access to quality information on the U.S. activities of large non-U.S. companies makes it difficult to why certain companies are investing while others are not.

For this report, PPI considered three categories of investment: energy, motor vehicle, and non-motor vehicle industrial manufacturing. We chose these categories because of their importance to facilitating broader growth in the U.S. economy. We calculated the U.S. capital expenditures for companies in each category in 2011 and 2012, using publicly available financial reports.

This report is part of our “Investment Heroes” series, and follows from our 2012 report “U.S. Investment Heroes: Who’s Betting on America’s Future?” that ranked U.S.-based companies by their 2011 U.S. capital expenditures.

Download policy brief.

Why America’s Youth Aren’t Finding Jobs

Posted on by The Progressive Policy Institute

Writing on youth unemployment, Fortune’s Nin-Hai Tseng quotes Diana Carew:

“They’re not in school, so what are they doing?” says Diana Carew, economist at Progressive Policy Institute, who studies youth unemployment. She points out that July’s jobs report shows that the share of unemployed 16- to 24-year-olds not in school stood at 17.1%, compared with 11% six years ago. And while workers in general have been leaving the labor force, partly because they’re aging into retirement, it’s especially worrisome when young people drop out: In July, 8.4 million 16- to 24-year-olds stopped looking for work altogether, a rise from 6.8 million a year earlier.

However slowly the economy has been creating jobs, it’s still surprising why so many young people, particularly those who aren’t in school, are still having a tough time. The bulk of jobs created in July were in retail, restaurants, and bars. These certainly aren’t the highest-paying gigs, but they demand fewer skills and would naturally attract those with less education. What’s played out is what Carew calls “The Great Squeeze,” where the dearth of middle-skilled jobs have forced many workers to settle for whatever they can get, taking lower-skilled jobs for less pay and therefore squeezing those with less education and experience out of the workforce.

Read the entire article here.

Declining Industries vs Growing Jobs: What the WaPo Deal Tells Us About Innovation

Posted on by The Progressive Policy Institute

Does innovation create or destroy jobs?  The rush of new ideas and new technologies can turn formerly rock-solid companies into sand that melts away even as we watch.  The sale of the Washington Post is a case in point. By making that deal,  the Graham family is acknowledging that they could not see a good strategy for survival.

We know what will happen next: Fewer journalists will be working at the Post a year from now than today.  The Grahams allowed the operation to run mammoth losses which Jeff Bezos, rich as he is, will not tolerate.  Many people will suffer.

But remember this: Old industries can decline even as new jobs growth. In fact, the field of journalism is going through a massive innovative spurt that is creating jobs even as others are being destroyed. About a month ago I did a post on exactly this subject, where I looked at unpublished BLS data and help-wanted data from The Conference Board.  Here’s what I found:

  • Employment at newspapers is  down about 5% over the past year.
  • The number of help-wanted ads for “news analysts, reporters, and correspondents” is up 15% compared to a year ago.
  • More people are telling the BLS that they are working as a news analyst, reporter, or correspondent compared to a year ago.
  • Roughly half the want-ads for news analysts, reporters and correspondents contain the words ‘digital’, ‘internet’, ‘online’, or ‘mobile’.

Let me do this as a chart.This chart plots employment in the newspaper and periodical industry (the blue line) against want ads for “news analysts, reporters, and correspondents” (the red line) We start with June 2007, right before the recession started, and go to June 2013.

We see that print media employment and demand for journalists track pretty well through December 2009. Both drop around 20%. The annual data from the BLS CPS survey (not shown on chart) tells roughly the same story. From 2007 to 2009 employed “news analysts, reporters and correspondents” dropped from 84K to 65K, also roughly a 20% decline.

 

 

Ah, but starting with 2010, we see a divergence. Employment in the legacy print media business continues to drop, with no sign of a turnaround. Both newspapers and periodicals continue to close and lay off workers, undermined by online competition in both the news and ad business.

But the demand for journalists picks up sharply. According to data from The Conference Board, the number of want ads for news analysts, reporter, and correspondents more than doubled from early 2010 to today! Moreover, it is noteworthy that the BLS annual series show a 25% gain in the number of working journalists from 2009 to 2012 (not shown on chart)

Now, let’s be realistic. I’m not saying that the true demand for journalists doubled between the beginning of 2009 and today, although given that no one was hiring in the depths of the recession, that statement might be literally true. In fact, the help-wanted series is an example of naturally-generated ‘big data’, meaning that it can be affected by changes in business practices, such as the way jobs are posted. The nature of journalism jobs may also be changing.

However, there seems little doubt that technology and innovation in journalism is creating new jobs in different industries even as the old companies and old industries are being undermined. I’m pretty sure that jobs at Politico are not being reported not in the same industry as jobs at the Washington Post, even if Politico hires a WaPo reporter to cover more or less the same things.

As innovation accelerates, we’ll see more examples of this kind of divergence: Declining old industries, growing new jobs.  Our task is to identify where the new jobs are and encourage them.

 

No Recovery for Young People?

Posted on by The Progressive Policy Institute

In July 2013, just 36 percent of Americans age 16-24 not enrolled in school worked full-time, 10 percent less than in July 2007. It’s no secret that young people are struggling economically, but my analysis of Friday’s BLS release sheds light to what extent. The fact that so many young people are not realizing their true earnings potential in these formative years could have serious long-term consequences.

Friday’s numbers are the latest sign the recovery is passing young Americans by. The below chart shows the share of young Americans not enrolled in school working full-time fell with the recession and have yet to return to 2007 levels. This is true even if we divide it by age – that is, for both young Americans age 16-19 and age 20-24 not enrolled in school in July.

While the initial drop in full-time employment is not surprising, what is startling is that is that either age group is showing much, if any, improvement since the recovery began four years ago. The same trend holds even if we look at months where more students are enrolled in school (i.e., January). The non-recovery is also true if we look at total employment and overall labor force participation.

What’s more, education matters in how likely young people are to work full-time. As shown in the next chart, for those with less than a high school diploma, 14 percent worked full-time, compared to 66 percent with a Bachelor’s degree or higher. This re-emphasizes the importance of higher education in successfully finding full-time work in today’s economy.

Of the 17 million Americans age 16-24 not enrolled in school or working full-time in July 2013, 5.6 million were working part-time, 3.2 million were unemployed – a 17.1 percent unemployment rate – and another 8.4 million were not in the labor force altogether.

Together, these charts suggest the problem facing young Americans is structural. If worsening labor market conditions were a temporary effect of the recession, we would have expected to see improvement with the recovery. Instead, young Americans appear stuck in their post-recessionary state.

What could be behind the stubborn labor market for young Americans? One explanation is the Great Squeeze, which I’ve written about before. The dearth of middle-skill jobs is forcing workers unqualified for today’s high-skill, high-wage jobs to take lower skill jobs for less pay, squeezing those with less education and experience down and out of the workforce.

The struggles facing young Americans should not be ignored. It’s clear the policies in place now to prepare and integrate young Americans into the workforce are not sufficient. If we are serious about moving from a slow-growth economy to a high-growth economy, it’s something policymakers will have to address.

Note: For those interested in the effect of rising college enrollment on overall labor force participation of young people, there are several points to consider. One, in July most college students are not enrolled, and would be counted here. Second, the number of young Americans age 16-24 not enrolled in school and not working continues to rise. In July 2007 labor force participation for this group was 73.3 percent; in July 2013 it was 68.8 percent. Third, college enrollment has actually been falling for the last two years, with the decline actually accelerating. Finally, many college students also work. According to the same BLS data 42 percent of people age 16-24 enrolled in school also were in the labor force in July 2013.

A Grand Bargain on Student Debt?

Posted on by The Progressive Policy Institute

Yesterday a coalition of eight Senators finally announced a deal on federal student loan interest rates. The compromise, which takes cues from previous proposals from the White House and House Republicans, will peg interest rates on all new federal student loans to the rate on 10-year Treasuries plus a margin. The deal, several months in the works, will retroactively replace the doubling of interest rates that took effect July 1.

Senate Democrats, who had wanted more generous terms for students, are calling the deal more of a grand rip-off than a grand bargain for students pursuing college. Although the deal calls for capping interest rates, they argue that even with the caps borrowers will still pay higher rates than before, especially as the economy improves and interest rates rise. Moreover, according to CBO estimates, the deal will increase federal student loan profits by additional $700 million over the next decade – all on the backs of innocent parents and students.

This deal should be seen as a reasonable compromise.  As I’ve written before, interest rates are only a small part of the actual problem facing student debt. Whether interest rates are 6.8 percent or 8.25 percent (the deal’s new cap for unsubsidized Stafford loans, which most undergraduates get) makes little difference in an economy where half of recent college graduates are underemployed or unemployed, and where real earnings for young college graduates are falling. It does little to address what’s really bloating the amount students owe – ever-rising principal from higher tuition – and it does nothing to address the existing $1.2 trillion mountain of outstanding student loans.

Moreover, it’s not clear pegging long-term student debt to short-term debt borrowing costs, like the federal funds rate or 1-month Treasuries, is the best approach. Such term mismatching – borrowing on short-terms and lending on longer-terms – can be risky, especially for student loans, which are uncollateralized and dependent on future earnings.

If Senate Democrats are unhappy with the deal, they should take the rising burden student debt seriously when they review federal student loan programs for the reauthorization of the Higher Education Act (HEA) later this year. That will be a great opportunity to address one of the biggest issues of our time: helping young people succeed in today’s economy.

New Fed Data Highlights the “Great Squeeze”

Posted on by The Progressive Policy Institute

Yesterday’s New York Fed release on recent college graduates concluded that “young college workers have been struggling more in recent years.” The study found that almost half of recent college grads were underemployed in 2012, a figure which has continued to rise since the start of the recession. In fact, last year underemployment of young grads was the highest it’s been since the early 1990’s.

High underemployment for young college grads exactly encompasses what I call the “Great Squeeze.” The continuing disappearance of middle-wage jobs, coupled with a lack of preparedness for today’s high-wage, high-skill jobs, means more educated young people are taking lower skill jobs for less pay. This is squeezing those with less education and experience down and out of the labor force, having a disproportionate effect on the youngest segment of the working population.

To be sure, a college degree is still worth it. In spite of their economic struggles, those with a degree are still more likely to find a job and have higher earnings than those without a college degree.

And not all college graduates are feeling the squeeze. The New York Fed presentation also showed, not surprisingly, that those who studied more technical fields that were in high-growth sectors of the economy are enjoying significantly less underemployment and higher earnings than those in other fields of study.

But that doesn’t negate the clear majority of recent college graduates that are feeling the squeeze. Adding in the share of recent college grads that were unemployed in 2012, and we see a picture where at least half of young college grads were either underemployed or unemployed last year. Student debt, now over $1 trillion and climbing, is exacerbating the problem.

This is not by any means a hopeless scenario, but it does call for action. The slow-growth recovery we are stuck in is not enough to get today’s young graduates back on track to buy a home or save for a secure retirement. Instead we need policies that prioritize investment over consumption, and move us into a high-growth economy. A key part of that is having an educated workforce which is able to realize its full potential.

Teen Employment: Which Cities Have the Best Prospects?

Posted on by The Progressive Policy Institute

The start of summer means it’s time for millions of teenagers to find seasonal jobs. But which major cities are showing the best chances for employment?

It turns out teenagers have seen sizable employment gains in cities like San Francisco and Phoenix, while experiencing large drops in cities like Philadelphia and Miami. Nationally, teenage employment has fallen by 5 percent since the recovery began.

I looked at changes in employment for teens age 16-19 across major cities – defined as having a teenage population greater than 200,000 – to see which cities were the biggest winners and losers. I calculated the employment average over May 2009-April 2010 and compared it to average employment for the year ending in April 2013. (Population remained relatively constant over this period.)

Cities* with Largest Teen Employment Gains Since the Recovery
Rank City 2009-13 Employment Change
1 San Francisco 30%
2 Phoenix 28%
3 Washington DC 22%
4 Atlanta 16%
5 Detroit 8%
National average -5%
*Cities with teen population greater than 200,000
Source: Current Population Survey, PPI

 

Cities* with Biggest Teen Employment Losses Since the Recovery
Rank City 2009-13 Employment Change
1 Philadelphia -32%
2 Miami -23%
3 Boston -13%
4 Los Angeles -10%
5 Dallas-Ft. Worth -10%
National average -5%
*Cities with teen population greater than 200,000
Source: Current Population Survey, PPI

What could be behind these major gains and loses? Most likely the employment prospects for teenagers mirrors general economic conditions in these areas. The fact that some cities experienced large, positive employment gains for this group is welcome given that the national teen unemployment rate stands at 24.5 percent, more than three times total unemployment.

As for the cities experiencing large employment losses, teens are likely competing with more educated and experienced adults, even for low-skill jobs. In a recent USA Today article, I explained that in today’s slow labor market recovery teenagers are increasingly finding themselves squeezed down and out of the workforce as middle-skill jobs disappear. I call this phenomenon “The Great Squeeze.”

The Great Squeeze Persisted in 2012

Posted on by The Progressive Policy Institute

New PPI research finds young people continued to be squeezed from the labor force in 2012 relative to people age 35 and over. More young people, facing limited job prospects in spite of a broader economic recovery, are being forced to leave or stay out of the workforce. This could have serious long-term implications for the economic well-being an entire generation.

Over 2000-2012, the labor force participation rate for young people aged 16-24 fell by 17 percent, a precipitous fall that was exacerbated by the recession but started well before. Similarly, in 2012 those aged 25-34 were still 4 percent below their labor force participation high in 2000. They are struggling to recapture lost jobs during the formative years of what determines one’s career and earnings potential.

The staggering fall of labor force participation rates for the youngest working age segment of the population cannot be explained solely by increased college enrollment. Had the labor force participation rate remained constant since 2000, I estimate there would have been an additional 4.1 million people aged 16-24 in the labor force in 2011. Meanwhile, BLS data shows college enrollment of people aged 16-24 was 3.2 million higher in 2011 than 2000, and more college students were in the labor force (although the participation rate fell).

Continue reading “The Great Squeeze Persisted in 2012” →

Is the Labor Market for Colleges Grads Looking Up?

Posted on by The Progressive Policy Institute

Young educated Americans are finally rejoining the workforce. According to BLS statistics, the labor force participation of Americans age 18-34 with a Bachelor’s or Associate’s degree is rising again. By comparison, young people without higher education are still dropping out of the labor force.

The chart below shows the divergence in labor force participation between young people with and without a degree. Having a degree makes a big difference in who shares in the labor market recovery and who is increasingly left behind. Interestingly, young people with a vocational Associates degree are having the best recovery in labor force participation, even better than those with a Bachelor’s degree.

To be sure, the news is not all good. College students are well aware of the challenges awaiting them, like rising average student debt and falling real earnings. Most young grads say their biggest ambition has come to finding a job that pays enough to cover rent.

Continue reading “Is the Labor Market for Colleges Grads Looking Up?” →

Young People Turned Out to Re-Elect President Obama. Now What?

Posted on by The Progressive Policy Institute

They defied the pundits: young people turned out to vote in numbers that rivaled their 2008 record. An estimated 23 million young people age 18-29 voted, even more than the highly coveted 65 and over cohort. And not surprisingly, for reasons I’ve previously pointed out, young people overwhelmingly supported President Obama by a margin of 60-40.

But President Obama’s work has really just begun. Now that TV advertising has returned to normal, young people are eager to know what’s next, what President Obama is going to do to help them get more jobs and more money.

Young people are struggling: they’ve had a worse recession and recovery than any other age group. The 18-34 year old cohort is still over 2 million jobs short since the recession began and real earnings continue to fall. But helping young people means understanding why they have been hit so hard in the first place relative to other age groups, why they weren’t the first to be re-hired as common theory dictates, and why the youngest and least educated are being squeezed out of the labor force. Continue reading “Young People Turned Out to Re-Elect President Obama. Now What?” →

Why Young People Overwhelmingly Support Obama (Hint: It’s in the Jobs.)

Posted on by The Progressive Policy Institute

On Sunday Mitt Romney told an Ohio crowd that he couldn’t understand why a “college kid” would vote for Obama. He said Obama was spending all their money and that the only thing they would get from it was a bill with interest. Instead Romney promises to cut the deficit and simultaneously create an astounding 12 million jobs in his first term.

Despite his promises, young people overwhelmingly support Obama. President Obama enjoys a 19-point lead over Romney among likely young voters according to the latest polls.

Why? It’s all in the jobs. The number one concern of young voters is jobs and the economy. They need more jobs and more money. And while Romney talks a big game, his lack of details leave young people uninspired.

Meanwhile, Obama’s plan offers concrete ideas to address the economic struggles of young people, the 73 million people age 18-34. Since the recession they have lost over 3 million construction, production, and office jobs. Obama’s plan includes bringing back production jobs that may have been lost to unfair competition, while encouraging “innovation clusters” to form the next crop of high-skill, high-wage jobs. His plan increases public investment in infrastructure, boosting construction jobs in the short-term and providing a foundation for a strong economy in the long-term. His plan establishes more public-private partnerships to better match students with today’s business demands. Continue reading “Why Young People Overwhelmingly Support Obama (Hint: It’s in the Jobs.)” →

Moderate Mitt Returns

Posted on by The Progressive Policy Institute

No one should be surprised that Mitt Romney turned in a strong debate performance last night. After a string of missed opportunities and self-inflicted wounds stretching back to the Republican National Convention, his campaign had stalled and was losing altitude. Whereas President Obama merely had to avoid mistakes, Romney needed to pull himself out of a political tailspin.

Did he succeed? The commentariat says yes, but it has a vested interest in keeping the presidential race close. It will take a few days to gauge the debate’s impact on actual voters, but it’s probably safe to say Romney was won himself a fresh hearing.

Most important, Romney used the first presidential debate to reposition himself closer to the political center. This was just the opposite of what he had done during the GOP primary debates. Then, Romney worked hard to ingratiate himself with the ultra-conservative Republican base by attacking his rivals from the right — for example, by lambasting Texas Gov. Rick Perry as a softie on immigration.

Last night, in a bravura act of self-revisionism, Romney recast himself as the Massachusetts moderate he vehemently denied being during the primaries.

In the primaries, Romney had railed against regulation as a mortal threat to America’s “job creators.” Last night’s moderate Mitt sounded more reasonable, embracing the general need for regulation while singling out a few provisions of the Dodd-Frank financial regulation law he regards as going too far. Continue reading “Moderate Mitt Returns” →

Beyond Goods and Services: The (Unmeasured) Rise of the Data-Driven Economy

Posted on by The Progressive Policy Institute

INTRODUCTION
We live in a world where ‘data-driven economic activities’—the production, distribution and use of digital information of all types—are the leading edge of economic growth. Mobile broadband, increasingly available even in poor countries, is fostering a fundamental technological and social transformation.  Big data—the storage, manipulation, and analysis of huge data sets—is changing the way that businesses and governments make decisions.  And torrents of data ceaselessly flow back and forth across national borders, keeping the global economy linked.

Yet paradoxically, economic and regulatory policymakers around the world are not getting the data they need to understand the importance of data for the economy. Consider this: The Bureau of Economic Analysis, the U.S. agency which estimates economic growth, will tell you how much Americans increased their consumption of jewelry and watches in 2011, but offers no information about the growing use of mobile apps or online tax preparation programs.  Eurostat, the European statistical agency, reports how much European businesses invested in buildings and equipment in 2010, but not how much those same businesses spent on consumer or business databases. And the World Trade Organization publishes figures on the flow of clothing from Asia to the United States, but no official agency tracks the very valuable flow of data back and forth across the Pacific.

The problem is that data-driven economic activities do not fit naturally into the traditional economic categories.  Since the modern concept of economic growth was developed in the 1930s, economists have been systematically trained to think of the economy is being divided into two big categories: ‘Goods’ and ‘services’.

Goods are physical commodities, like clothes and steel beams, while services include everything else from healthcare to accounting to haircuts to restaurants. Goods are tangible and can be easily stored for future use, while services are intangible, and cannot be stockpiled for future use.   In theory, a statistician could estimate the output of a country by counting the number of cars and the bushels of corns coming out of the country’s factories and farms, and by watching workers in the service sector and counting the number of haircuts performed and the number of meals served.

But data is neither a good or service. Data is intangible, like a service, but can easily be stored and delivered far from its original production point, like a good. What’s more, the statistical techniques that have been traditionally used to track goods and services don’t work well for data-driven economic activities.  The implication is that the key statistics watched by policymakers—economic growth, consumption, investment, and trade—dramatically understate the importance of data for the economy.  In turn, these misleading statistics distort government policy.

SUMMARY
In this policy brief we will show that government economic statistics, stuck in the 20th century, are missing most of the data boom.  To remedy this problem, it is time to expand our economic statistics to add data as a primary economic category, just like goods and services.  Until we do this, policymakers and regulators won’t have the information they need to make good decisions.

This policy brief is organized around three major arguments:

  1. We explain why data is becoming important enough to get its own statistical category. Individuals can consume data, just like they can consume soda (a good) or haircuts (a service). Businesses can invest in databases, just like they invest in buildings and equipment.  And countries can export and import data, just like they export and import goods and services. As a result, instead of breaking down the economy into goods and services, statisticians need to be thinking about goods, services, and data. Adding data as a primary economic category can give policymakers a much more accurate picture of economic growth, consumption, investment, employment, and trade.
  2. We show how the official economic statistics dramatically undercount the growth of data-driven activities.  To give a real-life example, we focus on the consumption of data by Americans.  According to statistics from the Bureau of Economic Analysis, real consumption of ‘internet access’ has been falling since the second quarter of 2011.
  3. In other words, according to official U.S. government figures, consumer access to the Internet—including mobile—has been a drag on economic growth for the past year and a half.  This is simply absurd. As a result, the official statistics are missing such important trends as the increasing adoption of smartphones and tablets, the growth of mobile broadband, and the enormous surge of usage of services like Gmail, Dropbox, Facebook, and Twitter.
  4. We adjust the official U.S. statistics to account for unmeasured data consumption by individuals. Based on our estimates, we show that real GDP rose at a 2.3% rate in the first half of 2012, compared to the 1.7% official rate. In other words, the impact of the data-driven economy on overall economic growth is being substantially underestimated. Based on these figures, the growth in data consumption in the United States accounts for roughly one-quarter of adjusted GDP growth in the first half of 2012, making  data consumption by individuals is one of the largest contributors to U.S. economic growth in this period.
  5. We assess the link between economic growth and future government privacy and data regulatory policy in the 21st century data-driven economy Given that we have shown that data powers growth, correctly measured, we discuss the possibility that excessive privacy and data regulation can inadvertently harm future growth prospects.

To put it another way, restrictive and prescriptive regulation of the Internet and the movement and uses of data could have the effect not only of constraining Internet freedom but also Internet free trade.  Such regulation could become the trade barriers of the data-driven economy, “balkanizing” access to information and innovative data-driven products and services and constraining global economic growth. That’s a highly undesirable outcome for everyone.

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Photo credit: Shutterstock/photobank.kiev.ua