Washington, DC – The House Subcommittee on Antitrust released its long-awaited report today on competition in digital markets. The recommendations include a call to break up tech companies so they can no longer own platforms and offer products and services on them at the same time, something that almost all other retail leaders do and do well.
“The radical proposals set forth in the report would hinder America’s most innovative and globally competitive companies, simply because they are big, and ultimately would harm consumers,” noted Alec Stapp, Director of Technology at the Progressive Policy Institute. “The real problem with antitrust enforcement is that our agencies are underfunded and haven’t addressed the real competition issues in the healthcare and other consumer-facing industries”
“The report just skips over the statistical evidence that these companies lead the sector which has performed better than the rest of the economy in terms of prices, productivity, wages, investment and job growth,” said Dr. Michael Mandel, Chief Economic Strategist at the Progressive Policy Institute. “If you have a car that’s running smoothly, why disassemble it for parts?”
Experts Alec Stapp, Director of Technology Policy and Dr. Michael Mandel, Chief Economic Strategist at the Progressive Policy Institute are available for commentary. For more information or to speak with Alec or Michael, please contact Ryan@RokkSolutions.com.
The Covid-19 crisis has put a spotlight on how archaic government systems are failing to keep up with the times and handle an unexpected surge of applications for public assistance programs. Cybersecurity threats have demonstrated vulnerability in aging government IT systems. New missions and requirements for government technology capability have shown the limitations of 20th century technology systems and resources for addressing 21st century needs.
The scale of the problem is massive. According to our estimates, federal, state and local governments would have needed to spend an accumulated $316 billion more over the past 20 years to have kept up with the growth of software investment per worker in the private sector. This should be viewed as a lower bound on the shortfall in government IT investment, as this figure excludes hardware investments that also should have been made.
Washington needs to build incentives inside government for a technology culture of continuous improvement and innovation to keep up with external technology developments and changes. Absent such a major modernization strategy, government will become less and less functional in our everyday lives. We need a big push to modernize government, using new digital tools not only to deliver services more efficiently, but to reengineer public services to make them more citizen-friendly and empowering.
To meet public expectations for the kind of speed, versatility, accuracy and efficiency that Americans experience in the non-governmental aspects of modern daily life, we must once again reinvent government just as we did 25 years ago at the beginning of the internet age.
Congress has tried to provide critical relief to Americans during the Covid-19 pandemic — passing three phases of disaster relief totaling 13.6 percent of GDP — but the rollout of support has been marred by obsolete IT and bureaucratic culture.1 In June, the House Ways and Means Committee estimated between 30 to 35 million stimulus checks had yet to be issued.2
The initial rounds of the Paycheck Protection Program (PPP) also were plagued by institutional delays, internal IT system crashes and incomplete, inaccurate and lagging databases. An April 2020 survey by the National Federation of Independent Business found that 28 percent of small business owners were unsuccessful in submitting an application for funds.3 The Small Business Administration’s loan processing system, known as E-Tran, crashed twice in April, frustrating lenders and small business owners seeking relief.45
State governments have also stumbled. For example, unemployment offices have been stretched thin as roughly 58 million Americans have filed claims since March.6 In Washington State, only 41 percent of claims had been paid as of July 30.7 Florida’s unemployment website has crashed repeatedly, with phone calls to the office going unanswered8, and citizens complaining of lengthy delays. Frustrated workers in Oklahoma and Kentucky have camped out overnight in front of unemployment offices for answers.9
Government IT Woes Predate COVID
The COVID-19 crisis is just the latest example of a chronic issue plaguing government programs at the state and federal levels. Poor information technology infrastructure and practices, antiquated and siloed systems, and outdated databases, have led to three main issues: security vulnerabilities, poor user experience and lengthy delays for citizens interacting with their government.
On the question of data security, perhaps the most infamous case is the data breach of the U.S. Office of Personnel and Management (OPM) in 2015 by hackers working for the Chinese military.10 The incident affected 22.1 million Americans and included data on security clearance files, Social Security numbers (SSNs), job assignments, performance evaluations, fingerprints, and financial and health records.
Most disturbingly, data missing from the OPM database could potentially be used by foreign spy services to uncover CIA operatives working under diplomatic cover, as Ellen Nakashima reported for TheWashington Post: “Names that appear on rosters of U.S. embassies but are missing from the OPM records might, through a process of elimination, reveal the identities of CIA operatives serving under diplomatic cover.”11
But while the OPM hack may have attracted the most attention in recent years, it wasn’t even the largest hack of U.S. government data in terms of the number of people affected. As shown in the table below, data breaches of the U.S. Voter Database, the National Archives and Records Administration (NARA), and the U.S. Postal Service (USPS) each affected more than 50 million Americans.
Table 1: Largest Government Data Breaches
Source: Government Accountability Office
15 In addition to data breaches, government databases are often inaccurate and out of date, leading to ineffective performance. For example, the IRS taxpayer database contains incomplete and aging data, which resulted in improper payments in PPP benefits to large numbers of dead taxpayers, returned payments that were misdirected, and even funds sent abroad to foreign citizens of other countries. 1213
Currently, the U.S. government spends the vast majority of its IT budget on maintaining and operating older legacy systems rather than upgrading and modernizing them. A 2019 Government Accountability Office report found that 80 percent of the $90 billion the federal government planned to spend on IT in 2019 would be used to operate and maintain existing systems.14 As shown in the table below, the report concludes that there are 10 legacy systems most in need of modernization, a few of which are more than 45 years old. One system at the Department of Education still runs on Common Business Oriented Language (COBOL), a programming language first introduced in 1959.
COBOL was originally designed for mainframe computers. While it has mostly died out in the private sector as businesses have transitioned from owning on-premise mainframe computers to renting cloud computing services from Amazon, Microsoft, or Google, COBOL has been in the news recently as government relief programs struggle to cope with surging demand.16
Government systems still rely on this outdated technology for essential services. At the state level, COBOL has been used to keep unemployment insurance programs running continuously for 40 years (34 state unemployment systems still depend on it today).1718 And during the current crisis, New Jersey’s governor put out a call for volunteers fluent in COBOL to help fix the state’s computer systems.19 Data from Indeed, a job listings search engine, showed a massive increase in search interest for “COBOL” in April.20 But there is a real risk these calls for help will go unanswered. COBOL is only the 43rd most popular programming language as of this year and the average age of a COBOL programmer is about 55-years-old.2122
Why haven’t millions of people received their economic impact payments from the IRS yet? COBOL seems to be the culprit there, too. Many Americans encountered error messages (“Payment Status Not Available”) when they tried to find out why they hadn’t received their stimulus check yet.23 The solution? Using only uppercase letters in the form (and if that didn’t solve the issue, people were advised to try abbreviating words like “Street” and “Avenue”).
But the problems are not just limited to outdated programming languages. The IRS has a profoundly outdated and inaccurate taxpayer database and its systems are unable to talk to each other. John Koskinen, the Commissioner of the IRS from 2013 to 2017, testified on multiple occasions in Congress, and made other public statements, about the dangerously outmoded condition of the agency’s IT infrastructure, even citing existing systems that date back to the Kennedy Administration.24
Other government processes are also antiquated. In New York, newly unemployed workers are required to fax in documentation.25 In some states, people can file for unemployment online, but only from a desktop or laptop computer.26 The state websites, it turns out, aren’t mobile-friendly — a significant barrier for the millions of people whose only internet access is via their smartphones.27 And some states, such as Illinois, even shut down their websites for multiple hours every day.28
A Decades-Long Investment Shortfall
These problems with the government’s digital infrastructure didn’t arise overnight. Technical failures of this nature are the inevitable result of an accumulating investment deficit over recent decades. According to a Progressive Policy Institute analysis of Bureau of Economic Analysis data, federal and state government investment in software per worker significantly lags behind private sector investment.2930
As the pandemic recession grinds on, the federal and state governments must invest more in digitizing their operations if they are going to deliver aid faster and more accurately. U.S. officials should study the example of Estonia, which has digitized 99 percent of government services, including online voting, an e-residency platform that allows businesses across the European Union to establish and manage a business online, and a nationwide system of digitally-kept health records.31323334 Estonian officials estimate that digitizing these processes saves the country two percent of its Gross Domestic Product a year in salaries and expenses, roughly what it pays to meet its military obligations to NATO.35
The federal government has a Technology Modernization Fund, but it’s only been allocated $125 million since 2017 when it was created.3637 In its big relief bills (such as the Paycheck Protection Program and the CARES Act), Congress included funds for agencies to upgrade their technology systems. For example, the bills allocated nearly $3 billion to the Small Business Administration that could be used to upgrade and modernize its IT systems. But much of the money has gone to hire outside contractors rather than to acquire new technology. For instance, the Small Business Administration awarded RER Solutions $500 million for data analysis and loan recommendations as part of Covid-19 relief.38 Sufficient in-house technology systems would both limit the potential for breaches to occur and be a more prudent use of taxpayer money rather than continuously “renting” delivery systems.
For too long, the U.S. public sector has been a laggard in adopting the modern digital technologies that the rest of society have. That’s mainly been the result of underinvestment. To close this public-private technology gap, the federal and state governments need to invest more in software and systems improvements to ensure aid is rapidly delivered during the next crisis.
Government IT Needs Both Incremental Modernization and End-to-End Modernization
All of these issues might make it seem like the best approach is to tear everything out root-and-branch and start over. And while end-to-end modernization strategies might make sense in some cases, for the most essential government systems, an incremental strategy is actually best because it minimizes risks to essential services and limits downtime for users. As Alasdair Allan, a computer scientist at the Raspberry Pi Foundation, pointed out, legacy software systems have accumulated decades of solutions to corner cases and bug fixes. Starting from scratch would be a mistake:39
You should (almost) never rewrite from scratch, and (almost) never throw the legacy system away, it is your institutional knowledge. A legacy software system is years of undocumented corner cases, bug fixes, codified procedures, all wrapped inside software.
If you start from scratch you will miss things. There is no guarantee that you will end up in a better situation, just a different one. I have yet to speak to anyone that has been involved with a project to reimplement a large legacy code base from scratch that has anything good to say about the idea. Document, improve the build system, modernise the infrastructure around it. Write tests. But do not throw it away.
Modern programming languages can be used to deliver social services on modern devices (e.g., smartphones) while sitting on top of the existing mainframe servers. This approach would drastically improve the user experience while preserving the accumulated knowledge. But what might this look like in practice and where should the government start?
Start Small: Public-Private Partnerships and Pilot Projects
One area the federal government can look to improve incrementally in terms of delivery via information technology is anti-poverty programs. Low-income families spend inordinate amounts of time and energy running from one social service agency to the next to apply for public assistance. Now, with many offices shut down, social distancing, and intermittent mass transit, that job is harder than ever. The opportunity costs of simply applying for and receiving public support have risen dramatically. We need to use new digital tools to reduce those costs by empowering low income people to apply once online and receive benefits on an ongoing basis.
Over time, government IT systems have accrued a lot of technical debt — the cost of future work caused by choosing an easy, short-term fix.40 Solving these problems won’t be easy. But a step in the right direction would be passing the Health, Opportunity, and Personal Empowerment (HOPE) Act.41
As Joel Berg detailed in a white paper for PPI in 2016, the HOPE Act would jumpstart the modernization of social services with pilot projects and innovation contracts.42
“Currently, low-income families need to navigate a morass of bureaucracy to receive the benefits they need and deserve, including SNAP, WIC, and UI benefits. Filling out the requisite forms often requires waiting in long lines and traveling to far flung offices. For example, for residents of Panola, Alabama, the closest location to get a driver’s license is a 70-minute drive away.For more complicated processes, recipients often need to hire professionals to help them secure financial assistance from the government.
A 2016 PPI study found that low-income workers paid an average of about $400 each to national tax preparation storefront chains in low income neighborhoods.43 A better alternative would be to move all these services online and make them accessible from a single smartphone app.”
Nevertheless, the government — at both the federal and state and local levels — does not have a good track record of building large scale transactional systems. Moreover, poor customer experiences have too often resulted from government attempts to mimic the online transactional processes and consumer interfaces the public has come to expect from their daily experiences with private sector innovations. And as we’ve shown, the government has a big task ahead in fixing its current systems, in terms of financial resources, managerial resources, and tech talent resources.
However, the needs of the country also cannot wait for notoriously lengthy public procurement cycles to solve these problems. Just getting through the phases of systems design, specifications, and competitive procurement for major systems would take 5-10 years, while implementation of awarded contacts would take 5-10 years more, with high risk of obsolescence by the time of deployment. Successful government reinvention will therefore require reinvention of processes and strategies for service delivery in order to rapidly meet public expectations for performance. Innovative public-private partnerships, with appropriate public safeguards, should be a cornerstone methodology for government reinvention in the 21st century.
With all of that in mind, new online service delivery platforms could be provided via multi-sourced public-private partnerships – including those at no cost to either the public treasury or individual users — which would allow the government to harness the private sector’s technology capabilities and IT infrastructure, with a declared objective of creating an environment of continuous innovation and improvement. The government could then create supporting national public communications campaigns, down to the community level, to inform the public about the availability of these service platforms, so the working poor can know there is are free online, government-sponsored and regulated alternatives available to them.
According to Berg, the HOPE Act can help make this better alternative a reality:44
“Here’s how HOPE would work: The President and Congress would need to work together to enact a law that would authorize the federal Departments of Health and Human Services (HHS), Housing and Urban Development, (HUD), Treasury, and Agriculture (USDA) to work together – and to form public/private partnerships with banks, credit unions, and technology companies – to create HOPE accounts and action plans that combine improved technology, streamlined case management, and coordinated access to multiple federal, state, city, and nonprofit programs that already exist. States and localities would initially be asked to participate in pilot projects implementing the accounts and plans, and, if they work, would be required over time to implement them universally.”
The program would only cost $35 million in its initial stages and would go a long way to showing the potential benefits of bringing government tech into the 21st century. As Berg says, “In America, trying to get out of poverty can be a full-time job.”45 In normal times, this is a tragedy. In a pandemic, when tens of millions are at risk of becoming impoverished for the first time in their lives, this is a national emergency.
The HOPE Act can serve as the first step in a radically pragmatic approach to modernizing government IT. Senator Kirsten Gillibrand and Representative Joe Morelle have been leading the effort to include this bill in the Phase 4 relief package for the COVID crisis and low-income Americans need this change now more than ever.46
A big part of the problem is that government investment in software has not kept pace with the private sector. As Figure 1 shows, real private sector investment in software per full-time equivalent (FTE) worker increased at an annual growth rate of 6.4 percent over the last 20 years. Meanwhile real investment in software per FTE worker grew at a noticeably slower rate of 4.7 percent for federal nondefense, 4.1 percent for federal defense, and 4.1 percent for state and local governments.
If the federal nondefense sector had kept pace with the private sector, software investment in 2019 would be 38 percent, or $10.7 billion higher (Table 2). Software investment in the federal defense sector would be 55 percent higher, and state and local government software investment would be 54 percent higher.
Table 2: The 2019 Software Gap (billions)
Actual software investment
Necessary software investment*
Size of the gap
Federal Nondefense
28.3
39.0
38%
Federal Defense
12.6
19.5
55%
State and Local
20.1
31.0
54%
*assuming that real software investment per FTE had kept up with private sector
Data: BEA, PPI
But that’s not the worst of it. This gap has accumulated over time, as year after year the government has spent less than it should have. According to our estimates, the accumulated shortfall in government software investment since 1999 has totaled $316 billion. As Table 3 shows, federal nondefense, federal defense and state and local governments would have invested an additional $123.6 billion, $89.5 billion, and $102.5 billion, respectively, to match the private sector’s pace over the last 20 years. This should be viewed as a lower bound on the shortfall in government IT investment, as this figure excludes hardware investments that will also need to be made.
Table 3: Accumulated Shortfall in Software Investment, 1999-2019 (Billions)
Federal Nondefense
$123.6
Federal Defense
$89.5
State and Local
$102.5
Total
$315.6
Source: Bureau of Economic Analysis data, author calculations
*See Methodology Appendix
While the task of modernizing government technological capabilities may seem immense, it pales in comparison to the opportunity cost of not acting at all. A Technology CEO Council report highlighting opportunities for innovation in government use of technology estimated the federal government alone could save $1.1 trillion over the next decade in areas like fraud and improper payments prevention, big data and analytics, mobile, and cybersecurity.47 For example, the federal government is forecast to make $117 billion in improper payments in FY 2020 and has made over $1 trillion in improper payments since FY 2012.48 Technology CEO Council estimates “the federal government could reduce improper payments by approximately $270 billion over 10 years” by employing techniques like when IBM implemented predictive analytics for New York State, which resulted in the prevention of $1.2 billion in improper tax refunds.49
Cybersecurity is another area where modern technology can save taxpayer money. A study by the Ponemon Institute found the United States to have the highest average cost for a data breach in 2020 at $8.64 million.50 Public-private partnerships can help federal, state and local governments avoid expensive cybersecurity attacks. IT security company Akamai helped the U.S. State Department move to a secure cloud-based web presence that successfully protected the agency from one of the largest Distributed Denial of Service (DDoS) attacks on U.S. government websites to date.51
Once again, public-private-partnership is an essential part of a 21st century cyber defense strategy. A good example is the Treasury/IRS Security Summit and ISAC, which was created by IRS Commissioner Koskinen five years ago, in concert with the private sector. This Treasury/IRS initiative has thus far reduced identity theft tax refund fraud by 80.52 This innovative strategy to defend the tax system against international cyber-attacks should be studied as a model for other government agencies who hold sensitive information and billions in public assets.
Conclusion
The Covid-19 pandemic has shed a light on the obsolete systems used by federal, state and local governments to deliver relief. When time was of the essence, the federal government stumbled in delivering stimulus checks and PPP loans efficiently and accurately. State governments were ill-equipped to process the unprecedented surge in unemployment applications. To be sure, government IT issues predate the pandemic, as federal and state systems have been routinely compromised by data breaches.
The root cause of these IT problems is a decades-long shortfall in government infrastructure investment. For example, the overwhelming share of the federal government’s investment in IT is spent on operating and maintaining outdated legacy systems, some of which are more than half a century old. But the solution isn’t to maintain obsolete systems that aren’t secure and don’t serve their purpose anymore; the solution is for governments to invest in modernization and digitization. Governments should start with pilot projects and partner with the private sector where possible. The HOPE Act would represent a down payment on the $316 billion we estimate federal, state and local governments has fallen behind the private sector. Likewise, modern public-private partnership strategies would enable government to leverage private sector investments and infrastructure to apply them to public purpose.
Methodology Appendix
Data from the Bureau of Economic Analysis enables us to calculate real software investment per full-time equivalent worker for the private sector, the federal nondefense sector, the federal defense sector, and the state and local sector. As shown in Figure 1, the growth rate was substantially faster in the private sector compared to the three government sectors.
We then calculated how much higher software investment in the three government sectors would have needed to be in each year since 1999 to match the growth rate of real software investment per FTE in the private sector. We then translated this increase into nominal dollars and summed over the twenty-year period to get the total shortfall. The 2019 figure gives the current gap reported in Table 2.
This estimate should be regarded as a rough measure of the amount of “software debt” that the government has built up. Ordinarily we might not worry about a lack of spending 10 or 15 years ago because of depreciation, but the government has spent far too much money holding legacy database systems together with scotch tape.
The other issue is hardware. The data published by the BEA for government spending on computers includes “consumption expenditures” as well as investment, so it doesn’t quite correspond with private sector investment in computers. It is generally agreed, however, that even in the era of cloud computing that the government needs to modernize its hardware.
In a new paper, the Progressive Policy Institute, working with the National Spectrum Consortium, projects that applications of 5G will create 309,000 manufacturing jobs in the United States over the next 15 years. That’s only a small part of the 4.6 million jobs that 5G is expected to create over that period, according to the paper, “The Third Wave: How 5G Will Drive Job Growth Over the Next Fifteen Years,” which I co-authored with Elliott Long.
The application of 5G to manufacturing is especially important because the new communications technology has the potential to jumpstart a lagging sector. Yes, it feels funny to call manufacturing a lagging sector, but that’s the only way to describe it. Even before the pandemic, labor productivity decreased in 18 of the 21 NAICS 3-digit manufacturing industries in 2019, according to a recent report from the Bureau of Labor Statistics. Output grew at a crawl.
The benefit of 5G is that it allows a much faster digitization of the physical transformation processes that lie at the heart of manufacturing. A 2019 McKinsey analysis observed that “[f]or decades, factory automation has relied on programmable logic controllers (PLCs) that were physically installed on (or very near) the machines they controlled, and then hard-wired into computer networks to ensure precise, reliable control under extreme conditions. If 5G consistently meets its performance promises, the PLC could be virtualized in the cloud, enabling machines to be controlled wirelessly in real time at a fraction of the current cost.” Not only will costs be lower, but flexibility will be improved.
5G, because of its low latency and high throughput, won’t just be an evolution in technology, but a revolution. It will open the door to incredible innovation in both the private sector and the government – including augmented and virtual reality, precision agriculture, smart ports, transportation and logistics, autonomous vehicles, connected construction and so much more.
In the United States, it is critically important to understand how this fundamental shift in technology will impact the broader economy, especially at a moment when COVID-19 has caused significant economic disruption and massive job losses nearing Great Depression levels. Key questions include:
How many jobs will be created by the 5G Economy? Will they be focused around traditional technology centers like San Francisco, New York, and Boston, or create new opportunities across the nation? What kinds of jobs will be created?
And for policymakers, what does the U.S. need to do to support efficient allocation of radio spectrum to support this technology development? And should we provide job training to ensure that workers in America can meet the opportunity?
Already the 5G job revolution has begun. Large mobile providers such as AT&T and Verizon are building out new networks across the country. Network companies such as Cisco, CommScope, Mavenir, and L3Harris are hiring 5G system architects, Radio Access Network (RAN) engineers, 5G solution architects, and technical managers in the 5G space.
Technicians and tower climbers are putting up 5G small cells at a rapid pace. This is not the first time that fundamental shifts in networking technologies have created sudden shifts in the economy and job opportunities.
This paper identifies and outlines three waves of wireless-driven job growth (Summary Table 1) in the U.S., and answers major questions about how many jobs will be created, which industries will be affected, where they will be located, and what we can do as a nation to accelerate efforts to meet this challenge.
Wave 1, The Rise of Wireless, covers the period from 1990-2007, as mobile carriers were building out the original wireless networks and cell phones went from a rarity to a necessity. Wave 1 generated roughly 200,000 jobs in the wireless industry.
Wave 2, “The App Economy,” covers the period from 2007 to 2019, which was rooted in the application of wireless to mobile apps via smartphones, rather than in the wireless industry.
Conventional BLS statistics contained no categories for app developers. But a widely cited study by this report’s author, released in early 2012, analyzed detailed data on job postings and estimated that the U.S. App Economy included 466,000 jobs, including workers developing and maintaining mobile apps and the workers supporting them. (1) Follow-up studies showed continued growth in the U.S. App Economy, with the latest figures from September 2019 reporting more than 2.2 million App Economy jobs. (2) This reflects an average growth rate of more than 20 percent annually. The main locus of Wave 2 job growth has been in industries such as entertainment, finance, communications and social networks, whose output can be easily delivered in a digital form (hence “digital industries”).
Wave 3, “The 5G Revolution,” began in 2019 as mobile carriers expanded their initial 5G networks. Wave 3 is generated by the applications of wireless to challenges in physical industries, such as agriculture, energy, construction, manufacturing, transportation, education, healthcare, and government including defense.
In recent years, most of these physical industries have experienced low or negative productivity growth, as well as low spending on telecommunications services.
5G is reversing both of these trends. Faster, more versatile wireless communications are an essential factor in driving productivity gains and creating jobs. Research shows that industries like manufacturing, construction, and healthcare have lagged in digitization, helping explain why productivity growth has been so slow. To increase productivity, physical industries need the ability to gather information from widely dispersed sensors and to use that data to control activities in real time. That’s not possible without faster and more versatile wireless commnications supplied by 5G. And the COVID-19 pandemic is accelerating the shift to many of these use cases.
How many jobs in the US will The 5G Revolution generate?
Unlike Wave 2, which mostly generated “cognitive” tech jobs which required a college education, Wave 3 is rooted in the physical world.
As a result, Wave 3 will also create mixed ‘cognitive-physical” skilled jobs, many of which fall into the category of installers and maintainers. So while App Economy jobs were focused on software development, Wave 3 jobs will drive job growth in dozens of sectors, across the economy in what we would traditionally consider both white collar and blue collar positions. Simply put, the third wave will benefit a wider set of Americans and regions than the second wave did.
For example, healthcare providers already monitor medical equipment like pacemakers remotely. But with 5G, the set of possible athome diagnostics or even interventions will expand greatly, and telehealth installers and maintainers will be a highly valued occupation. Similarly, precision agriculture will require “field sensor technicians,” autonomous vehicles will need a cadre of mechanics, and ecommerce will need people skilled in robotics maintenance.
Using the latest BLS projections as a baseline jumping off point, we estimate that 5G and related technologies will create 4.6 million jobs relative to the baseline in 2034, 15 years after the introduction of 5G in 2019 (which is also, not coincidentally, the peak of the most recent business cycle). These are higher paying jobs that will replace jobs that are lost in a wide range of industries and use cases (Summary Table 2).
In an important sense, 5G job creation is a countervailing force to job destruction from automation and globalization, and critically important in the post-COVID world.
During these tough economic times, we also need to be concerned about the short-term job impact and opportunities that 5G is creating as well. This paper also shows that current 5G build-out and engineering activities are creating 106,000 jobs as of April/May 2020. We estimate the location of these jobs by state. To get this estimate, we use a combination of data from real-time job postings and BLS figures.
What Do Policymakers Need to Do?
Finally, this paper identifies four areas where policymakers should focus to harness the full potential of 5G.
First, more spectrum – mmWave, sub-6, and unlicensed – will be needed for broadband and related applications. The U.S. would benefit greatly from a long-range spectrum plan. While the Trump Administration has directed the Department of Commerce to create a National Spectrum Strategy, it has not yet been released.
A long-range spectrum plan would ensure the resource is allocated wisely, provide certainty to 5G stakeholders, and encourage long-term investment in networks for 5G and beyond.
In addition to spectrum, the U.S. also needs a plan for the adoption of 5G across the government, both defense and civilian. The public sector should be a leader, not a follower.
Third, Congress should be willing to invest heavily in the development of 5G and successor technologies. That’s essential if the U.S. is to keep up with global competition.
And finally, the U.S. should make a significant investment in job training. The U.S. needs to double down on traditional STEM fields and encourage more people in America to go into engineering and math. Beyond that, we need a national skills initiative and mentoring programs to ensure that this new generation of workers will have the training needed to support the cognitive-physical jobs that the 5G Revolution is already beginning to create.
I. THE FIRST TWO WAVES OF WIRELESS JOB CREATION
Wireless technologies are generally divided into generations, each one corresponding to higher speed and increased capabilities. 5G is the current technology being rolled out, with 6G on the horizon, promising even faster speeds and satellite-terrestrial integration.
However, for the purposes of this paper we use a different taxonomy, based on the labor market impact of wireless technologies.
Wave 1: The Rise of Wireless
Commercial mobile radio telephony—what is sometimes called “0G”—was available as a niche service since the late 1940s. (3) It had very little economic impact. The first true commercial portable cellphone, the Motorola DynaTAC 8000X, was introduced in 1983, but there were only 5 million cellphone subscribers as of 1990.
But the use of cellular wireless technology rapidly gathered speed after 1990, giving rise to 109 million subscribers as of 2000 and 233 million subscribers as of 2006. Not surprisingly, the need to build out networks, and handle a soaring customer base generated a large number of jobs. The number of people working in the wireless industry went from 36,000 in 1990 to 200,000 in 2000. (4) Wireless employment remained at roughly that level until 2007 (Fig 1).
The first wave of wireless job growth encompasses 2G in the 1990s and 3G and 3G+ in the first half of the 2000s. With 2G data speeds measured in the kilobits, only low-bandwidth applications such as voice, text messages, and email were viable. Running other applications on top of a slow network was almost impossible.
Mobile internet became possible with 3G and 3G+, but it was still not fast enough to make a significant difference.
Wave 1, The Rise of Wireless, was not anticipated in any of the long-run employment projections issued by the BLS in the late 1980s and early 1990s. That’s important, because the BLS projections, issued regularly since the 1960s, are the most widely quoted comprehensive long-run occupational and industry forecasts available. The BLS also maintains the most detailed occupation industry matrix available for the United States.
Yet, the BLS projection methodology typically misses the impact of new technologies. For example, the employment projections issued in 1993 anticipated that telecommunications employment would drop from 912,000 in 1992 to 791,000 in 2000. (5) In reality, telecommunications jobs rose to 1,185,000 in 2000, 50 percent above the projected value (Table 1). (6)
Wave 2: The App Economy
The second wave of wireless jobs, The App Economy, began in 2007 with Apple’s introduction of the iPhone, coupled tightly with the opening of the App Store and Android Market (later renamed Google Play) in 2008. Suddenly mobile phone users had a powerful computer in their pockets that could handle a myriad of applications. The demand for mobile broadband soared. Mobile wireless networks moved from faster versions of 3G to 4G and LTE, as the number of broadband subscriptions soared.
But the second wave of wireless jobs also started with a paradox. Despite the central role of mobile, employment in the wireless industry peaked in 2007 and fell by half by 2019. In 2011, the Wall Street Journal ran a piece with the stark title: “Wireless Jobs Vanish.” (7)
In fact, wireless was creating jobs, but not in the wireless industry. (8) More and more IT professionals were involved in either developing mobile apps, maintaining them after they were on the market, or supporting them with users. For banks and other financial institutions, mobile apps became an important way of supplying their services without having expensive real estate or branch workers. Moreover, mobile apps could use the camera on smartphones to provide services like depositing checks at homes.
Beyond utilitarian tasks like banking, shopping, and travel reservations, apps became the major way that people interacted with their smartphones. We watched videos, listened to music or podcasts, messaged friends, played games, and spent time on social networks. One survey found that adult Americans spent almost three hours per day on their smartphones, and 90 percent of that time was spent on apps. (9)
Conventional BLS statistics contained no categories for app developers. But a widely cited study by this report’s author, released in early 2012, analyzed detailed data on job postings and estimated that the U.S. App Economy included 466,000 jobs, including workers developing and maintaining mobile apps and the workers supporting them. (10) Follow-up studies confirmed continued growth in the U.S. App Economy, with the figures from April 2019 reporting more than 2.2 million App Economy jobs. (11) This reflects an average growth rate of more than 20 percent annually (Table 2).
Other studies have found similar or even higher estimates. For example, a 2018 study from Deloitte estimated 5.7 million App Economy jobs in the U.S., using a different methodology and a much bigger assumption of spillover effects. (12)
The job impact of mobile broadband and the App Economy did show up in the official numbers in a different way: the unexpectedly rapid growth of people working in “computer and mathematical occupations.” “Computer and mathematical occupations” is a broad category that includes data scientists, software developers and engineers, information security specialists, computer support specialists, and database and network administrators.
By contrast, skilled workers who maintain the telecom networks—the people who lay and fix the fiber-optic lines and put up the cellphone towers—are in the “installation, maintenance, and repair” occupations.
The BLS projections in 2007 and 2009 underestimated the expected size of the computer and mathematical workforce in 2019 by roughly 20 percent, or over 1 million workers. But the relevant categories of skilled installers and maintainers were overestimated in the projections. This tilt towards tech jobs is very important for understanding the third wave (Table 3).
II. WAVE 3: THE 5G REVOLUTION
Wave 3 of wireless-driven job growth, The 5G Revolution, began in 2019 as mobile carriers expanded their initial 5G networks, and then continued into 2020. All major carriers in the U.S. — AT&T, Verizon, and T-Mobile — are heading towards nationwide 5G networks by the end of 2020, according to analysts. (13) The pandemic has made the case for 5G more compelling as many of the use cases for 5G services have been pulled into the present.
Telehealth has become not just optional but a requirement in many medical situations.
Students from kindergarten to graduate school have been forcibly introduced to distance learning. Businesses and governments have been learning how to use virtual meetings, at a much lower cost than flying around the world. Companies have started using robots to help disinfect their stores. (14)
The U.S. military faces its own challenges, as the virus has forced changes in routines to minimize infectiousness and to protect its suppliers. “We believe the COVID-19 pandemic has accelerated society’s transition to broadband and digitization by at least a decade,” said one market analyst in March 2020. (15)
Indeed, in the early days of the pandemic, Verizon announced that it was expecting to allocate $17.5- $18.5 billion on capital expenses in 2020, up from its previous guidance of $17-$18 billion. “This effort will accelerate Verizon’s transition to 5G and help support the economy during this period of disruption,” Verizon said in a press release. So far, the pandemic has caused spectrum auctions in Europe to be pushed back. (16) Meanwhile the FCC has not changed its spectrum auction plans for 2020. (17)
Spending on 5G networks is what is known by economists as “autonomous investment”—that is, investment that is not linked to the immediate ups and downs of GDP. (18)
The Extension of Wireless to Physical Industries
Wave 2 was focused on “digital industries,” where the output can be reduced to bits and bytes. This includes games, music, communications, social networks, news, advertising, financial services, and ecommerce purchases of digital goods such as hotel and plane reservations. These digital industries, while important, make up less than 20 percent of the economy. (19) (Formally defined, the digital sector includes computer and electronics manufacturing; ecommerce; software and other publishing; video and audio content; broadcasting; telecommunications; data processing; internet publishing and search; and computer systems design and programming. Slight changes to the boundary of the digital sector does not affect the analysis here).
Wave 3, by contrast, is based on the applications of wireless to the challenges and opportunities in physical industries, such as agriculture, energy, construction, manufacturing, transportation, education, healthcare, and government (including defense).
Physical industry use cases include low-power wireless sensors that must operate for long periods in a field, say, without a battery replacement, or a low-latency connection to a drone or autonomous vehicle.
Table 4 shows the key physical sectors had slow or negative productivity growth during the second wave (in general 1 percent annual productivity growth is adequate and 2 percent is good, so none of these industries made the grade). Slow or negative productivity growth means less competitive industries, weaker wage gains, and lesser quality jobs.
Surprisingly, most of these industries had low and falling spending on telecommunications services, as a share of total output (for most industries, total output can be interpreted as revenues. For defense, total output can be interpreted as spending including accounting for depreciation). (20) For example, in agriculture, the amount spent on telecom services went from a very low 0.16 percent in 2007 to an even lower 0.13 percent. (To provide some context, in 2018 the average telecom share for digital industries was 3.5 percent, and the average telecom share for physical industries was 0.7 percent).
5G is likely to reverse both of these trends. Faster, more versatile wireless communications are an essential factor in driving productivity gains. Research shows that industries like manufacturing, construction, and healthcare have lagged in digitization, helping explain why productivity growth has been so slow. To increase productivity, physical industries need the ability to gather information from widely dispersed sensors and to use that data to control activities in real-time. That’s not possible without faster and more versatile wireless communications supplied by 5G.
The ability to rapidly communicate data and information using 5G will increase productivity gains in both the public and private sectors. And these productivity gains, in turn, will lead to higher revenue, faster wage gains, advances in job quality, and increased international competitiveness.
In 2017, a study from the Technology CEO Council examined the impact 5G will have on productivity growth in the “physical industries” and tax revenues over the next 15 years.21 The report estimated that the physical industries will boost annual economic growth by 0.7 percentage points over the next 15 years, generating an additional $2.7 trillion in annual economic output, $8.6 trillion in wage and salary payments, and $3.9 trillion in federal tax revenue.
The 5G Revolution and Job Growth
The impact of 5G on jobs can be summarized as “network meets the cloud.” That means we can push more capabilities out to the edge, including real-time and near-real-time applications of machine learning and artificial intelligence to the physical world. In many cases, new technologies create new tasks and markets that didn’t exist before. (22) For example, healthcare providers already monitor medical equipment like pacemakers remotely. But with 5G, the set of possible at-home diagnostics or interventions will expand greatly, and telehealth installers and maintainers will be a highly valued occupation.
5G will greatly expand the capabilities of drones in a range of applications from agriculture to military to logistics, especially in conjunction with artificial intelligence. That will expand the market for skilled drone operators, sometimes called “remote-pilots-in-command,” earning as much as $100,000 per year.
The other alternative is that productivity gains will lower costs enough to expand the market, which ends up creating new jobs. (23) That’s what happened in ecommerce. The use of robots in ecommerce fulfillment centers, combined with effective use of data, helped drive down costs low enough to offer consumers fast delivery and easy returns. And the combination of fast delivery and easy returns, in turn, made the ecommerce proposition irresistible to many consumers, because now they could avoid the time and trouble of going to the store, getting the product quickly and simply returning it for free if it didn’t work. The result was a massive shift from unpaid household shopping hours to paid ecommerce fulfillment and delivery hours. (24)
Or consider manufacturing. The pandemic has called into question the wisdom of depending on global supply chains for important medical supplies, and by extension, any parts that one might need in a crisis.
The low-latency high-bandwidth services delivered by 5G can help spur the digitization of the factory floor, boosting productivity and increasing flexibility. (25, 26) The result could be a shift to distributed local manufacturing in the U.S. in the post-COVID era, creating jobs and shortening supply chains.
Table 5 identifies examples of Wave 3 jobs. Unlike Wave 2, which mostly generated “cognitive” tech jobs which required a college education, Wave 3 is rooted in the physical world. As a result, Wave 3 will also create mixed ‘cognitive-physical” skilled jobs, many of which fall into the category of installers and maintainers. In addition, people will continue to play an essential role in the supervision loop of advanced robots.
The types of cognitive jobs listed in Table 5 mainly fall into the broad occupational class of “computer and mathematical occupations.” Relative to the median wage for all occupations, these jobs pay a wage premium of 122 percent.
But Wave 3 will also generate blue-collar jobs that use a combination of manual and problem-solving skills—what we call “cognitive-physical” jobs— which are likely to pay a wage premium as well.
Today, the median wage for telecommunications equipment installers and repairers is 45 percent higher than the overall median wage, according to figures from the BLS. As 5G becomes an integral part of business operations, we would expect such jobs to become more valuable rather than less.
III. QUANTIFYING LONG-TERM 5G-RELATED JOBS
Estimates of job growth spurred by a new technology have to be measured against some baseline. As we noted earlier, the BLS projection methodology typically looks backward, not forward, and has a difficult time dealing with ongoing technological changes. BLS projections have consistently understated the job impact of wireless innovation. In the first wireless wave, jobs in the wireless industry came in 50 percent above projections. In the second wireless wave, the rise of the App Economy drove up demand for computer and mathematical jobs 21 percent above BLS projections as of 2019.
Our fundamental assumption is that unlike the second wave—which was mostly focused on digital industries—the third wave will drive demand for both cognitive and cognitivephysical jobs across the whole range of physical and digital industries. The third wave will therefore benefit a wider set of Americans and regions than the second wave did. We therefore adopt a simple and straightforward approach to estimating the impact of 5G on jobs. We start with the latest BLS industry and occupation projections, issued in September 2019, for the 2018-2028 period. We rebase them to 2019 and extend them to 2034 to get a 15-year projection.
Then we assume that the additional jobs produced by 5G in the third wave, relative to the baseline, are the same magnitude as the additional jobs produced by wireless innovation in the second wave. We then allocate these jobs across industries according to their size, rather than focused on only tech. Finally, we then apply a conservative job multiplier.
Based on these assumptions, we estimate that 5G and related technologies will produce an additional 4.6 million jobs in 2034 relative to the baseline original projected growth of 12.8 million.
When we say ‘additional’ we mean that 5G-driven job growth is an additional factor that the conventional projections do not take into account. In an important sense, 5G job creation is a countervailing force to job destruction from automation and globalization. These are higher paying jobs that will replace jobs that are lost.
Past Reports Projecting 5G impact On Jobs
In 2017, Accenture released a report estimating wireless operators will directly invest $275 billion between 2017 and 2024 in 5G infrastructure, creating up to 3 million jobs and boosting GDP by $500 billion.27 Of the $275 billion investment, $93 billion was estimated to be spent on construction, with the remainder being allocated to network equipment, engineering, and planning. Importantly, the report recognized this growth will be spread across communities of all sizes. “Small to medium-sized cities with a population of 30,000 to 100,000 could see 300 to 1,000 jobs created. In larger cities like Chicago, we could see as many as 90,000 jobs created,” the authors wrote.
More recently, a report on the global economic impact of 5G was released in November 2019 by IHS Markit, updating a 2017 study. (28) This report looked at several measures of 5G impact. First, the report forecast that between 2020 and 2035, global real GDP would grow at an average annual rate of 2.5 percent, with 5G contributing almost 0.2 percent of that growth. Second, the report looked at the seven leading countries for 5G—the United States, China, Japan, Germany, South Korea, the United Kingdom, and France—and found that the collective investment in R&D and capital expenditures by firms that are part of the 5G “value chain” within these countries will average over $235 billion annually, measured in 2016 dollars. The U.S. and China each accounted for about one-quarter of global spending on 5G R&D and capital expenditures. Third, the IHS Markit report estimated that 22 million jobs would be supported by the 5G value chain globally in 2035, with 2.8 million of those jobs in the United States.
Most recently, two economists at NERA Economic Consulting, Jeffrey A. Eisenach and Robert Kulick, estimated the potential job impact of 5G. (29) They found that if 5G adoption followed the path of 4G adoption, then, “at its peak, 5G will contribute approximately 3 million jobs and $635 billion in GDP to the U.S. economy in the fifth year following its introduction.” This employment effect is smaller but faster than the one reported here.
IV. KEY 5G USE CASES
As previously noted, The 5G Revolution will create job opportunities across many sectors and regions in the U.S. In this next section, we identify eight of the most likely use cases that have significant potential for job growth.
1. AGRICULTURE
Agriculture is an industry ripe for transformation. In many areas of the country, it is still heavily dependent on low-cost labor, which may be discouraged because of the pandemic. And as of 2018, only 0.1 percent of agriculture revenues were being spent on telecommunications, a percentage that had dropped slightly since 2007.
Faced with an evolving environment with increasing temperatures and diverging precipitation levels in wet and dry areas, precision agriculture will rely on an interconnected system of low power sensors, integrated equipment, and data—all powered by 5G—to monitor field conditions and maximize yields while efficiently allocating scarce resources such as water. (30)
To best utilize the new technologies, agriculture will have to build and maintain a new tech and telecom infrastructure and the workforce is only now starting to come into existence. This requires both software developers and people to install and maintain the equipment.
For example, as of March 2020, agriculture technology company Farmers Edge was looking for a precision technology specialist to install equipment and software at its growers’ farms in Madison, Wisconsin.
2. CONSTRUCTION
5G plays an essential role in digitizing construction, a key sector which has been plagued by high costs and low productivity in recent decades, especially in public infrastructure. (31) Perhaps not coincidentally, construction is one of the least digitized sectors of the economy. (32)
Since 2000, the cost of construction has risen 118 percent according to the Bureau of Economic Analysis. (33) Highways and streets have become 126 percent more expensive for state and local governments to invest in. (34) By comparison, overall prices in the economy have only risen 41 percent over the same time span. (35)
This increase in the relative price of construction helps explain why U.S. infrastructure seems shoddier and worn-out these days.
A 5G communication grid will allow the seamless and flexible integration of automated equipment and skilled workers on a construction site. Structures will go up faster with fewer dangerous errors, and worksites will be safer. Meanwhile, as 5G helps bring down the cost of construction, demand will rise. Both renovation and new building will be cheaper and faster.
3. UTILITIES
Energy use management is an essential use case for 5G. Utilities are already extensive users of information technology within their own operations to monitor power production and distribution. But 5G makes it much easier to connect up smart meters to the grid to give people and businesses better incentives to control their electric use.
This is one sector where our projection methodology may underestimate the number of new 5G-related jobs. If the energy infrastructure shifts over the next 15 years from fossil fuels to low-carbon energy sources, the opportunities for 5G-enabled workers may be very strong.
4. MANUFACTURING
In manufacturing, 5G and digitization will help reduce costs, making domestic manufacturing more competitive. Many manufacturing industries have weak or even negative multifactor productivity growth over the past 20 years. (36) Multifactor productivity growth takes into account the usage of purchased services, energy, capital, and intermediate inputs and is a key measurement of competitiveness. Investment in information technology such as 5G, which manufacturing has lagged in since the early 1990s, will enable new business models that expand markets and enhance domestic competitiveness.
New markets and reinvigorated domestic competitiveness means more jobs in the U.S. Through a combination of digitized distribution, digitized production, and new manufacturing platforms – coined by PPI as the Internet of Goods – a new network of smallbatch and custom goods factories will likely arise. Importantly, these industrial startups will fuel job creation in low-density areas and former industrial hubs like the Midwest and upstate New York, as physical industries like manufacturing dominate these economies. That means more domestic production and less imports. (37)
5. TRANSPORTATION AND WAREHOUSING
5G will transform how people and goods move from point to point and how cities manage traffic. This has major implications for industries ranging from defense and transportation to logistics and delivery.
Low-latency 5G connections will accelerate the roll-out of fully autonomous trucks and cars. But the flip side is that these vehicles will have to be maintained to a very high standard to keep them safe, creating more jobs for skilled technicians, and compensating for the loss of truck driver jobs.
These capabilities depend on the speed of 5G to rapidly relay data. In trucking, a report by McKinsey recognizes, “sixty-five percent of the nation’s consumable goods are trucked to market. With full autonomy, operating costs would decline by about 45 percent, saving the US for-hire trucking industry between $85 billion and $125 billion.” (38) This savings from automated trucking could be passed onto consumers in the form of lower prices. Delivery drones stand to further disrupt how goods are delivered.
And in traffic management, traffic signals will be based on real-time traffic flow rather than timed stoplights. Pittsburgh recently introduced smart traffic lights and saw travel times cut by 25 percent. (39) These innovations reduce the need for drivers and increase the need for maintenance and road workers as driving and delivery become less physically intensive and goods can be moved around the clock.
The creation of new types of jobs is already starting. As of March 2020, transportation services company Transdev Services was hiring a self-driving vehicle operator in San Francisco, California. Technology platform Argo AI was seeking an autonomous vehicle system test specialist responsible for operating its autonomous test platforms in Miami, Florida. And transportation services firm MV Transportation was searching for an autonomous vehicle attendant tasked with ensuring the safe operation of the Autonomous Vehicle in Corpus Christi, Texas.
6. EDUCATION (PUBLIC AND PRIVATE)
Students and teachers at all levels were forced to adopt virtual learning in 2020 because of the pandemic. Reports from the field have been mixed. The technology in many cases was not up to the task, and many students, especially in low-income neighborhoods, were caught on the wrong side of the digital divide. If schools want to engage in virtual learning, they will need a technology like 5G with the bandwidth for students and teachers to fully engage.
A related issue is training of workers on new equipment and processes. As 5G moves into the workplace, it will transform the way that physical industries such as manufacturing and healthcare do business. In order for workers to stay relevant, the training technology has to become 5G-enabled as well.
7. HEALTHCARE
As with education, the pandemic forced healthcare providers to adopt ad hoc telehealth practices without the proper technology. 5G will provide the framework in which providers can truly practice healthcare at a distance. Moreover, 5G is essential to unlocking quality healthcare for rural, low-density areas because of its ability to support real-time high-quality video, transmit large medical images, and enable real-time remote monitoring.
Maintaining the telehealth infrastructure will be a core function at hospitals, which will employ skilled telehealth technicians, just like they have lab technicians and nurses. Clinical information will flow wirelessly into electronic health records, requiring specialized database specialists who are trained in the medical and privacy requirements of these types of data. As of late April, Beth Israel Lahey Health of Beverly, Massachusetts was looking for a “telehealth installer.”
8. GOVERNMENT (EXCEPT EDUCATION)
We can divide the impact of 5G on government into military and civilian uses. On the military side, a March 2020 report from the Congressional Research Service noted: “5G technologies could have a number of potential military applications, particularly for autonomous vehicles, command and control (C2), logistics, maintenance, augmented and virtual reality, and intelligence, surveillance, and reconnaissance (ISR) systems—all of which would benefit from improved data rates and lower latency (time delay).” (40)
In fact, the USDOD has already released several Requests for Prototype Proposals for test beds focusing on AR/VR for training, smart warehouses and dynamic spectrum sharing. All of these potential applications generate new human resource demands as well. As the capabilities of 5G evolve, it becomes more important than ever to best make use of resources, both in terms of equipment and people. For example, as of summer 2020, The Aerospace Corporation was looking for a “5G and Internet of Space Things Wireless Network Engineer” with the ability to obtain a U.S. security clearance.
On the civilian side, “smart cities” development will mean that state and local governments will have to transform all of their services to 5G, from waste collection to police to property tax assessment. And that will, in turn, mean a workforce much more heavily oriented towards maintaining and repairing the necessary telecom equipment.
Where Will Wave 3 Jobs be Located?
Both the first and second wave of wireless jobs were concentrated in dense digital cities like San Francisco, New York and Boston.
Table 7 shows examples of top “digital” areas, as ranked by the share of local GDP coming from the information sector, the financial services sector, and the professional services sector (which includes law, engineering, and accounting, as well as computer programming).
Not surprisingly, the list of the top digital metro areas is headed by New York and San Francisco. There’s one important caveat: for confidentiality reasons, the Bureau of Economic Analysis suppresses some data, so we can’t calculate the digital share for all metro areas.
EXAMPLES OF TOP DIGITAL METRO AREAS
1. Boston-Cambridge-Newton, MA-NH
2. Boulder, CO
3. New York-Newark-Jersey City, NY-NJ-PA
4. San Francisco-Oakland-Berkeley, CA
5. Seattle-Tacoma-Bellevue, WA
*Listed alphabetically. Inclusion based on digital share, which measures the share of the information, financial services, and professional services sectors in overall metro GDP Data: BEA
By contrast, Wave 3 will benefit those areas which are more balanced in terms of digital and physical industries. Table 9 shows some examples of such areas. These areas are not tech deserts, for sure, but they are well-positioned to take advantage of the opportunities offered by 5G.
EXAMPLES OF BALANCED DIGITAL/PHYSICAL METRO AREAS
1. Albany-Schenectady-Troy, NY
2. Ann Arbor, MI
3. Baltimore-Columbia-Towson, MD
4. Buffalo-Cheektowaga, NY
5. Cleveland-Elyria, OH
6. Colorado Springs, CO
7. Detroit-Warren-Dearborn, MI
8. Harrisburg-Carlisle, PA
9. Huntsville, AL
10. Jacksonville, FL
11. Kansas City, MO-KS
12. Lincoln, NE
13. Pittsburgh, PA
14. San Antonio-New Braunfels, TX
*Listed alphabetically. Inclusion based on digital share, which measures the share of the information, financial services, and professional services sectors in overall metro GDP Data: BEA
V. SHORT-TERM SNAPSHOT: THE IMMEDIATE IMPACT OF 5G
So far, we have been discussing the longterm job impact of 5G. But in the wake of the COVID-19 pandemic, we need to be concerned about the short-term job impact as well. In this section, we show that current 5G build-out and engineering activities has already created 106,000 jobs as of April/May 2020 (Table 9).
Estimating 5G Network Build-out Jobs
Network build-out activities, of course, consist of installing 5G small cells around the country, including their backhaul connections. In some cases, the technicians and installers are employed directly by the carriers, while in other cases they are contractors. These are cognitive physical jobs, in the sense that we discussed earlier in the rep
ort. We get data on this employment from two different sources. First, the BLS track
s the number of “Radio, Cellular, and Tower Equipment Installers and Repairers” in its Occupational Employment Statistics (OES). (41) As the name suggests, this category includes the workers who install 5G access points. As of May 2019, the last data available, there were 14,370 workers in this occupational category, with a relative standard error of 5.8 percent. Factoring in a conservative job multiplier, that gives us a net job impact of 43,000.
How are those jobs distributed? The top state according to the BLS data is Texas, followed by New Jersey, California, and Florida. These figures were as of May 2019 and based on several years of rolling surveys (Table 9).
Of course, the location of build-out activity changes over time as providers finish with one area for now and shift their construction activities to other area. To understand current 5G construction activity, we turn to another data source: publicly available job postings. These job postings contain information on the location of jobs and also the skills needed. For example, one company is advertising for a “Tower Top Hand” with 5G experience in the Baltimore area.
The database of job postings that we use comes from Indeed.com, which identifies itself as “the #1 job site in the world.”(42) Indeed’s real-time database of job postings is full-text Booleansearchable, including by title, location and by age of job posting.
We searched for job postings with the terms “tower” or “technician” in the title, and 5G in the body of the posting. This allowed us to identify “hot spots”—metro areas where there was current hiring activity for workers installing 5G networks (Table 11).
As of early May, companies are hiring for tower technicians in areas such as Allentown, Pennsylvania and the Baltimore metro area, as telecom providers extend their 5G networks outside of the densest high-income urban areas. Indeed, local news publications in these areas show evidence of discussions about ongoing deployments. (43)
Current 5G Engineering and Software Jobs
Making 5G a reality will also require hiring in engineering and software development. But unlike cell and tower installers and repairers, there is no obvious BLS occupational category that matches up well to 5G engineers and software developers.
To understand the prevalence and location of 5G engineers and developers, we further analyze the universe of online job postings, using a methodology that was developed to estimate the number and distribution of App Economy jobs.
These job postings contain information on the location of jobs and also the skills needed. For example, in late April and early May 2020, Commscope was advertising for an “Engineer, Principal 5G Systems” in Richardson, Texas. Epsilon Solutions was advertising for a contract “Wireless Core Engineer” to “test, deploy and debug DISH’S standalone 5G network” in Denver, Colorado. And KaRDS Cyber Solutions in Annapolis Junction, Maryland was advertising for a “5G Wireless SME / Senior Systems Engineer Level 6.” This position required a “TS/ SCI clearance with polygraph.
We started by searching for job postings with the words “engineer” or “developer” in the title, with postings aged 30 days or less. This gave us our initial pool of roughly 50,000 postings nationally as of the end of April. Generally speaking, our past research has suggested that searches with no age limit work better, but because of the pandemic-related shutdowns, we decided to focus on the more recent job posts.
Within that pool, roughly 0.6 percent contain the term 5G. By contrast, job postings containing the terms IoT, Android or iOS, or mobile are far more common (Table 12). We then use this share of job postings to estimate the share of jobs (see Appendix). There are roughly 1.75 million engineers, and an equal number of software developers, according to BLS. Taking 0.6 percent of that total comes to roughly 21,000 jobs, and then accounting for the multiplier gives us 63,000 5G-related engineering related jobs.
A First Look at China
We gain some insights into the Chinese 5G labor market through analysis of online job postings in both English and Chinese, as collected by Indeed.com. This approach is limited because of the lack of visibility into hiring by key 5G companies such as Huawei, China Telecom, and Tencent, so we cannot arrive at an overall number. Nevertheless, even a preliminary analysis may be useful.
We consider job postings which include ‘5G’ in the title and were released 30 or fewer days ago. For example, in the U.S., CommScope posted an opening for a 5G Systems Architect. As of August 17, 2020, the U.S. had 85 such new postings, compared with 125 for China. As noted, the China sample is significantly incomplete.
To put these numbers into some context, over the same period, the U.S. had 14370 new postings with ‘software’ in the title, while China had 4137 new postings with ‘software’ in the title (in either Chinese or English). That suggests the intensity of Chinese hiring of 5G personnel, relative to hiring of software personnel overall, is higher than in the U.S.
These jobs are very heavily concentrated in a relatively small number of states. California and Texas by themselves account for almost 50 percent of 5G engineering job postings. This makes sense given the location of the leading companies in the 5G space.
VI. THE KEY INPUT TO 5G JOBS: CAPITAL INVESTMENT AND SPECTRUM ACCESS
5G is a capital-intensive investment by its nature. To realize its benefits, wireless operators must invest in R&D and capital expenditures in engineering and network buildout. In a 2017 study, Accenture estimated wireless operators will invest $275 billion from 2017 to 2024, $93 billion of which will be spent on construction. (44) Indeed, via its Investment Heroes series, PPI estimates the major wireless operators have invested more than $150 billion in the United States since 2016, much of which has gone towards 5G R&D and deployment. (45, 46)
The portion of spectrum to be most used for 5G is divided into two categories: millimeter wave (above 24 GHz) and sub-6 (6 GHz and below). (47, 48) Each of these spectrum ranges will play a vital role in bringing 5G products and services online. While mmWave has the fastest speeds, it has limited range and is not able to tolerate much interference like walls or rain. (49) In the sub-6 spectrum, the range is better than that of the mmWave, but speeds are reduced. While mmWave will be utilized in dense population areas such as downtown areas and stadiums to transmit data, sub-6 will be critical to providing access to IoT products in suburban and rural areas.
Spectrum for commercial use is controlled by the Federal Communications Commission (FCC). One of the ways the FCC distributes spectrum is by auctioning licenses, with the proceeds going to the Treasury Department. Since 1994, the U.S. government has raised over $100 billion in revenue from wireless companies participating in FCC spectrum auctions. (50) The FCC’s first 5G spectrum auction, the mmWave of 28 GHz, was conducted in November 2018.51 The FCC followed by auctioning the 24 GHz band in March 2019, and the 37, 39, and 47 GHz bands in December 2019. (52, 53)
Much of the spectrum used by mobile networks to date have been concentrated in the sub-6 bands of 600 MHz to 2.6 GHz. These mid- to low-bands are likely to be used for 5G as well to achieve wider geographical coverage. As of April 2019, the FCC had awarded 716 MHz of spectrum below 3 GHz. (54) Additionally, the FCC has designated the 2.5 GHz band to “be available for commercial use via competitive bidding”. (55) The FCC ran an auction the 3.5 GHz band in July and August 2020. (56) And in February, the FCC ordered satellite operators in the 3.7- 4 GHz range to relocate, freeing the space for reallocation by December 2023. (57)
The other mechanism by which the FCC distributes spectrum is by allowing unlicensed use of certain spectrum – for purposes such as Wi-Fi. Under this regime, operators can use designated airwaves to transmit data without getting permission from the FCC. (58) However, the lack of exclusivity in unlicensed bands means an increased risk of interference. In March 2019, the FCC freed up the 116-123 GHz, 174.8-182 GHz, 185-190 GHz, and the 244-246 GHz bands for unlicensed use. (59) And in April 2020, the FCC proposed rules to make the entire 6 GHz band available for unlicensed use. (60)
International Comparisons of Spectrum Allocations
In April 2019, Analyses Mason released a report summarizing certain countries’ spectrum allocations. (61) The countries had comparable amounts of spectrum below 3 GHz awarded, with the U.S. coming in first at 716 MHz, Australia in second at 690 MHz, Germany at third with 689 MHz, Canada fourth with 648 MHz, and the United Kingdom rounding out the top five with 647 MHz. Asian countries have allocated similar amounts of spectrum below 3 GHz, with Japan at 601 MHz, Hong Kong at 583 MHz, China at 582 MHz, and South Korea at 477 MHz.
Awarded spectrum from 3-24 GHz had greater variation among countries. “Whilst many countries have now awarded over 100MHz of (exclusive nationwide) spectrum to mobile, several countries (China, Italy, and Spain) have awarded 300MHz or more,” the authors write. Following those three countries were South Korea, the U.K., Australia, Japan and Qatar – all with 200 MHz or more allocated. Notably, the U.S., Canada, France, Germany, and Hong Kong had not awarded any of this spectrum as of April 2019. As previously mentioned, sub-6 spectrum is a critical component to delivering new 5G products and services outside of high population density areas because of its ability to travel long distances while still providing 5G speed.
In the mmWave range, only the U.S., South Korea, and Italy had awarded spectrum. The U.S. had awarded 2,500 MHz, South Korea 2,400 MHz, and Italy 1,000 MHz as of April 2019. Other countries in the analysis had mmWave allocations planned, ranging from the second half of 2019 to 2021. The U.S. leads in the total amount auctioned or planned to be auctioned at about 7 GHz, followed closely by China at 6 GHz, and Canada at nearly 5 GHz. Australia, France, Germany, Spain, Sweden and the U.K. all planned to assign around 3 GHz.
A broader February 2020 analysis of countries conducted by Global Mobile Suppliers Association found 40 countries have completed allocations of 5G suitable spectrum since 2015. (62) “A total of 54 countries have announced plans and approximate dates for allocating 5G-suitable frequencies with timelines for completion between now and end-2022,” the authors note.
The economic and national security implications of 5G are why the U.S. needs a long-run spectrum plan. In September 2018, the FCC unveiled its ‘5G FAST’ plan, detailing the previously discussed spectrum that it intends to make available for 5G services. (63) In October 2018, the Trump Administration issued a presidential memorandum directing the Department of Commerce to create a National Spectrum Strategy, but the strategy has not yet been released.
VII. POLICY IMPLICATIONS AND CONCLUSION
There are four important policy issues when it comes to 5G. First, as we have been discussing, is spectrum. As 5G opens up the physical industries to joining the digital economy, it becomes ever more imperative to have a longterm spectrum plan. Unlicensed spectrum, sub-6 spectrum, and mmWave spectrum all serve different purposes in the 5G ecosystem but are critical to realizing the full economic benefits of 5G.
The amount of spectrum suitable for 5G use is limited and thus needs to be allocated efficiently. Policymakers should prioritize a long-term spectrum plan that frees up more licensed and unlicensed spectrum, provides certainty for auctions in terms of cost and scheduling, streamlines government licensing and renewals, and encourages long-term investment in 5G networks.
5G is also critical to national competitiveness and security. As an April 2019 report from the Defense Innovation Board recognizes, leadership in 5G carries economic and national security advantages such as rapid communication systems, enhanced decision-making and strategic capabilities, better technology, standard setting, and job creation. (64) But, as the report notes, the physics of mmWave are challenging. Additionally, the sub-6 band is crowded with incumbent systems and uses, large portions of the spectrum are government owned and commercially limited, and there are concerns the Defense Department could experience reduced capability if it is required to share its sub-6 spectrum. While the Trump Administration has directed the Department of Commerce to create such a National Spectrum Strategy, it has not yet been released. For the U.S. to meet the challenges ahead, a national spectrum plan must carefully balance the government’s needs and what 5G will require in the long-term.
The second policy issue is increased government usage of 5G across both military and civilian activities. The public sector should be a leader in exploring cutting edge uses of 5G in areas like the delivery of government services and battlefield control-and-communications.
Third, Congress should be willing to invest heavily in the development of 5G and successor technologies. That’s essential if the U.S. is to keep up with foreign competitors, who are already focused on the military uses of so called 6G. (65) The federal government must start investing heavily in telecom research and development. The money should be split between nonprofits and for-profit companies, and the goal should be to create a new set of standards that American companies can build on.
And finally, the U.S. should make a significant investment in job training. The U.S. needs to double down on traditional STEM fields and encourage more people in America to go into engineering and math. Beyond that, we need a national skills initiative and mentoring programs to ensure that this new generation of workers will have the training needed to support the cognitive-physical jobs that the 5G Revolution is already beginning to create.
Methodology Appendix
In this paper we estimate both the long-term and short-term job impacts of the 5G Revolution, using different methodologies. Our 15-year estimates build on BLS employment projections, and assume a scenario where the employment impact of 5G is of the same percentage magnitude as the employment impact of Wave 2. The short run current job impact of the 5G build-out is estimated by a combination of BLS data and real-time job postings.
Context There are three main approaches for modeling the occupational impact of new technologies:
1. Consensus-based extrapolation of existing occupation-industry matrix, subject to industry employment constraints
2. Analysis of substitution effects of new technology on existing occupations
3. Modelling of new job creation by new technologies based on analysis of job impact of existing technologies. We call this the “bootstrap” approach.
Occupation-industry matrix In the United States (Bureau of Labor Statistics 2019), Canada (Canada Employment and Social Development Canada,2020), and other OECD countries, the main approach to modeling future occupational growth uses a detailed occupationindustry matrix. Industry growth is projected based on a macroeconomic model and an assumption of full employment, and “small changes” are made in the future coefficients of the occupation-industry matrix.
Because of their size and comprehensiveness, these models tend to be unique for their country. The BLS notes that “there are no comparable projections which are not in some way derived from BLS projections.”
However, such models in practice are not designed to pick up the occupational impact of disruptive technologies or the creation of new occupations. Indeed, the BLS explicitly benchmarks its model against what it calls the “occupational–share naïve model,” where the occupational share doesn’t change over time (BLS 2020).
Substitution effects of new technology
Frey and Osborne (2017) is the best-known example of projecting the potential substitution effects of new technology. By examining the tasks associated with particular occupations, they estimated that about 47 percent of total US employment is at risk of computerization.
However, the authors stress that their models only focus on the substitution effect of new technology, and provide no information at all about the job creation aspects of technology.
However, we make no attempt to forecast future changes in the occupational composition of the labour market. While the 2010-2020 BLS occupational employment projections predict US net employment growth across major occupations, based on historical staffing patterns, we speculate about technology that is in only the early stages of development. This means that historical data on the impact of the technological developments we observe is unavailable. We therefore focus on the impact of computerisation on the mix of jobs that existed in 2010. Our analysis is thus limited to the substitution effect of future computerisation.
For this reason, the substitution effect approach is inappropriate for this project.
Bootstrap approach
What we call the “bootstrap approach” uses the employment effects of previous technological advances to project the impact of future technologies. Shapiro and Hassett (2012) estimated the employment impact of 3G, and used that to project the impact of 4G. Accenture (2017) used the Shapiro-Hassett results for 3G to project the impact of 5G. Eisenbach and Kulik (2020) estimated the employment impact of 4G, and used that to project the impact of 5G.
In this project, we use the bootstrap approach, taking into account the new characteristics of 5G compared to 4G. We model the employment impact of 5G as a deviation from the BLS baseline forecast, based on the observed magnitude of the 4G deviation.
But whereas the employment impact of 4G was completely concentrated in white collar jobs and digital industries, we model the employment impact of 5G as extending to blue-collar jobs that use a combination of manual and problem-solving skills—what we call “cognitivephysical” jobs. Moreover, we model the industry impact of 5G as extending over the entire economy, including physical industries such as manufacturing, agriculture, and defense.
Here’s where the genuinely disruptive nature of 5G comes into play. We expect 5G to enormously increase telecom usage by physical industries, as 5G becomes an integral part of operations. However, as of the 2018 input-output data from the Bureau of Economic Analysis, telecom usage is still an extremely low share of intermediate inputs for many industries (see Table 4). As a result, current telecom usage is not a useful guide as to what industries will add workers with 5G.
In addition, to the degree that 5G usage is integrated into operations in physical industries, we would expect that the number of telecom installers and maintainers would increase. That has not yet happened under 4G. Indeed, the number of telecom installers and maintainers fell in 2019, according to BLS data (346K in 2018, versus 315K in 2019).
When dealing with technological trends that have not yet appeared in the official data, it is preferable to adopt the smallest number possible of conservative assumptions. In this case the model uses the employment category of “telecom installers and maintainers” as a proxy for skilled blue-collar, or “cognitive physical” jobs generated by 5G, as described on page 40 of the report. The model uses the employment category of “computer and mathematical occupations” as a proxy for cognitive jobs generated by 5G. And the model distributes the number of 5G jobs across all industries in proportion to their total employment. The model generates a conservative projection of 5G jobs by industry, based on the employment performance of 4G plus a small number of additional assumptions about the difference between 4G and 5G.
We recognize that totally new occupations generated by 5G might fall outside those categories 15 years from now. But given that 5G is just rolling out right now, we don’t have the data necessary, for example, to produce a credible forecast of the number of precision sensor installers that the agriculture sector will need to hire in 2033.
We also note that both the short term and long term models are completely agnostic about whether the 5G networks are built by the current cellular operators or by private enterprise. In fact, that is a strength of the methodology that we use. Industry-specific data was used to analyze Wave 1. But Wave 2 and Wave 3 are modeled based on occupational data which does not reference the cellular operators at all.
Long-term Estimate
The BLS regularly lists projections of employment trends by occupation and industry. As we showed in Tables 1 and 3, these projections underestimated the employment impact of the Wave 1 telecom boom by 50 percent after 10 years. The employment impact of the Wave 2 telecom boom on tech jobs was underestimated by 21 percent after 12 years.
To calculate this underestimate, we applied the projected growth rate of computer and mathematical occupations, derived from the 2007 and 2009 vintage projections, and applied it to the 2007 figure for computer and mathematical occupations from the Current Population Survey (CPS). Then we compared the result to the 2019 figure for computer and mathematical occupations from the CPS. We use the CPS data as the benchmark for the underestimate calculation because it gives the best available measure of the actual growth of tech jobs over time.
The analysis in this paper is based on the employment projections released in September 2019 for the time period 2018-2028. As in the past, these projections clearly do not have a telecom boom built into them. (A new set of projections were released in September 2020, after the analysis of this paper was completed. The new projections do not significantly change the results).
We will use a scenario for 5G jobs which is similar in one major respect to the Wave 2 boom, and different in two other aspects which reflect the particular characteristics of 5G.
As in Wave 2, we estimate that actual computer and mathematical employment (tech jobs) is 20 percent above the baseline BLS projection after 12 years (extending the projections an extra two years). These jobs are a proxy for cognitive jobs. (To be conservative, we use the occupational estimates from the BLS projection report as our 2018 starting point, rather than the somewhat higher CPS figures).
Unlike Wave 2, we estimate that actual number of telecommunications installers and repairers also come in 20 percent above projections after 12 years. These occupations are a proxy for skilled blue-collar, or “cognitive-physical,” jobs.
We allocate the additional jobs proportionally across all industries. By contrast, in Wave 2 the gains mainly came in digital industries.
We also use a conservative job multiplier of 3—that is, two additional indirect jobs for each direct job created by 5G (Bartik and Sotherland, 2019). By contrast, tech jobs are often assumed to create as many as five indirect jobs (MIT Sloane Review, 2012).
Short-term Estimate
We derive the number of “Radio, Cellular, and Tower Equipment Installers and Repairers” from the May 2019 Occupational Employment Statistics (OES). (68) As the name suggests, this category includes the workers who install 5G access points. However, by the nature of network build-out, where tower technicians were working last year may not be where they are working today. So we used the real-time database of job postings maintained by Indeed.com, which identifies itself as “the #1 job site in the world.” (69) Job postings are regularly used by economists as a rich data source. (70) Indeed’s real-time database of job postings is full-text Boolean-searchable, including by title, location and by age of job posting. We searched for job postings with the terms “tower” or “technician” in the title, and “5G” in the body of the posting.
For example, as of early July 2020, a staffing firm was looking for a “Tower Climber Technician” to work on maintaining and repairing 5G networks and based in the Detroit area. That gives us an indication of where mobile carriers or their contractors are hiring.
We also used job posting data to estimate the number of engineers nationally working on 5G projects. We started by searching for job postings with the words “engineer” or “developer” in the title, with postings aged 30 days or less. This gave us our initial pool of roughly 50,000 postings nationally as of the end of April.
Within that pool, roughly 0.6 percent contain the term 5G. The key assumption is the percentage of job postings for engineers and developers that include the term “5G” is a reasonable estimate of the percentage of engineers or developers that are involved in 5G development. Past research has supported this assumption.
Additional References
Accenture. 2017. “Smart Cities: How 5G Can Help Municipalities Become Vibrant Smart Cities.”
Timothy Bartik and Nathan Sotherland. 2019. “Realistic Local Job Multipliers,” WE Upjohn Institute, April 1, 2019.
Bureau of Labor Statistics. 2019. “Projections overview and highlights, 2018–28,” Monthly Labor Review, October 2019.
Bureau of Labor Statistics. 2020a. “Occupational Projections Evaluation: 2008–2018”
Bureau of Labor Statistics. 2020b. “Occupational Employment Statistics,” https://www.bls.gov/oes/
Jeffrey A. Eisenach and Robert Kulick. 2020. “Economic Impacts of Mobile Broadband Innovation: Evidence from the Transition to 4G,” American Enterprise Institute, May 2020.
Employment and Social Development Canada. 2020. “Canadian Occupational Projection System (COPS) – 2019 to 2028 projections.”
Carl B. Frey and Michael A. Osborne. 2017. “The Future Of Employment: How Susceptible Are Jobs To Computerisation?” Technological Forecasting and Social Change, 2017, vol. 114, issue C, 254-280.
AnnElizabeth Konkel. 2020. “Healthcare and Medical Research Postings Decline,” Indeed, July 9, 2020. https://www.hiringlab. org/2020/07/09/healthcare-postings-decline/
MIT Sloan Review. 2012. “The Multiplier Effect of Innovation Jobs,” MIT Sloan Reiew, June 6, 2012. https://sloanreview.mit.edu/article/themultiplier-effect-of-innovation-jobs/
Robert J. Shapiro and Kevin A. Hassett. 2012. “The Employment Effects of Advances in Internet and Wireless Technology:Evaluating the Transitions from 2G to 3G and from 3G to 4G.”
As U.S. Attorney General William Barr is reportedly rushing to file an antitrust lawsuit against Google, an action that has all the markings of a political vendetta, progressives in the New York state Senate are launching their own campaign against Big Tech.
The Senate Consumer Protection Committee will hold a hearing on Monday to consider a misguided proposal known as the “Twenty-First Century Anti-Trust Act.” The bill would dramatically adjust the purpose of New York’s antitrust laws. Current law aims to prevent price-fixing, while the new proposal would shift the law to a nebulous standard that targets any player assumed to be dominant in the market.
If passed and signed by Gov. Andrew Cuomo, this bill would set back innovation in this state.
The Progressive Policy Institute, where I serve as chief economic strategist, just put out a report entitled “Building American Resilience: A Roadmap for Recovery After COVID-19.” The report covers a wide range of topics, ranging from manufacturing (discussed below), to education, to health care, to small business, to metro area fiscal policy to the gig economy.
The report makes the argument that resilience—the ability to respond well to disruptive shocks such as pandemics, wars, and climate changes—is a public good that benefits everyone. Left to their own devices, private sector businesses will underinvest in resilience because they can’t capture all the benefits. Just to give an obvious example, no rational company would build an extra production line for N95 mask or mask material that isn’t needed in normal times, just on the off chance of a pandemic. Nor would a rational company invest in developing a process for making N95 masks faster and more cheaply.
Resilience rightly needs to be an explicit goal of public policy. That’s why the report advocates setting up a high-level National Resilience Council, tasked with identifying those industries and capabilities that are strategic, in the sense of improving the ability of the U.S. economy to deal with disruptive shocks. The National Resilience Council would certainly not be anti-trade, because globalization is often a good way to distribute risk. But it would follow a rigorous process of scrutinizing the reliance of the U.S. on foreign suppliers who might not be available in a crisis.
The “gig economy” has unlocked a wave of economic value in recent years. The direct impact of independent workers on the economy is almost $1 trillion, or 5% of GDP. Now, this extremely flexible segment of the economy is more important than ever in the midst of the COVID-19 pandemic. Surprisingly, even the healthcare industry has been laying off workers, as patients defer elective surgeries and postpone non-urgent care.
The gig economy has been a rare bright spot during a dark time for the U.S. economy. Since the shutdowns began in mid-March, more than 44 million Americans have filed for state unemployment benefits. Fortunately, platforms for independent workers have been able to pick up some of the slack. Instacart has hired 300,000 new workers and plans to hire 250,000 more. Target’s Shipt added 100,000 workers. Doordash and Amazon Flex are also seeing a surge in signups by workers. Part of the reason for this uptick is that gig workers often perform tasks that enable social distancing for others such as food or package delivery. Platforms that facilitate these transactions are also one of the only ways newly laid off workers can earn income during the crisis, bypassing strenuous hiring processes or the need to learn new skills. These flexible work arrangements can benefit society by swiftly shifting labor out of dormant sectors and into in-demand sectors.
For many workers, these new gig economy jobs will be temporary, serving as a lifeline during a difficult time. For others — and for the millions who were already independent workers — these new jobs might become permanent. While these jobs are certainly much needed during these times, a key inequity from before the pandemic remains: independent workers don’t receive the same benefits as employees. This is due to two factors. First, businesses generally prefer working with independent contractors as opposed to hiring employees because there are fewer rules and regulations associated with independent workers and therefore lower costs. Second, the tax code is biased against independent workers. Employee benefits tend to be untaxed, while independent workers must purchase benefits on their own using post-tax income.
So the critical question becomes: How can we help workers in these jobs get the benefits they need and deserve while maintaining the flexibility that traditional employment arrangements can’t offer and that independent workers value so dearly — and that have helped make our labor markets more supple and resilient during the present crisis?
As part of its disaster relief, Congress augmented regular unemployment benefits under the Pandemic Unemployment Assistance (PUA) program, including self-employed workers who had previously been excluded from receiving UI benefits. Including independent workers in this stimulus measure makes sense even from the logic of the unemployment system: Across the business cycle, the unemployment system already pays out more in benefits to workers than it receives in UI taxes. The system is designed to be an automatic stabilizer and Congress regularly increases outlays as a first line of defense in a recession.
Traditionally, workers have been sorted into two categories: employees and independent contractors. Gig workers are most often classified as independent contractors. Some progressives are calling for a change to the laws so that gig workers become employees.
This shift could undermine many of the benefits involved in freelancing by imposing costs, rules, and regulations associated with employment that undermine the autonomy independent workers currently enjoy. It’s no surprise that in surveys gig workers overwhelmingly say they don’t want to be reclassified as employees.
Nonetheless, that doesn’t mean they don’t want and deserve basic protections and benefits employees have. The current distinction between employees and independent workers is outdated and ill-suited to the 21st century digital economy. However, that didn’t stop California’s legislature from doubling down on the old model, passing AB-5 last September which effectively reclassified most independent workers as employees. The predictable result: independent workers in California have been laid off en masse.
In its news coverage of the passage of AB-5, Vox published an article with the headline “Gig workers’ win in California is a victory for workers everywhere.” Its reaction as a business, however, was quite different. A couple months later, its parent company, Vox Media, laid off 200 freelance writers right before the holidays (and right before the law went into effect on January 1).
It is time to update the U.S. tax code, which is biased toward employees and against independent contractors. According to the Bureau of Labor Statistics, total benefits are more than 30% of hourly compensation for private sector employees. If businesses try to give independent workers benefits, that’s taken as prima facie evidence that those workers are actually employees and the associated regulations apply to them. And most of these benefits are tax-advantaged: retirement and savings, insurance (life, health, short-term, and long-term disability), paid leave, workers compensation, and unemployment benefits.
But it’s important to note: all else equal, that this plan to extend tax-preferred benefits to independent workers wouldn’t cost taxpayers any more in lost tax revenue than converting all independent workers into employees because the benefits would be untaxed in both cases. In other words, if a federal version of AB-5 were to be implemented, independent workers that become employees in that scenario would also receive tax-advantaged benefits.
A new tax and regulatory regime that solves this inequity would have several important features:
• It should equalize the tax treatment of benefits so that independent workers are on a level playing field with employees.
• It should require a baseline level of benefits and protections for independent workers, including a cafeteria-style plan with a menu of options for workers to choose what makes the most sense for them.
• It should have a uniform national standard for determining who is an independent worker. For example, one possibility is that companies would have minimal control over hours of work, and no non-compete agreements
Here’s how it would work. Companies would pay a certain share of the worker’s earnings into a dedicated account for pre-tax benefits. There would be no required match from the beneficiary. The independent contractor would accrue benefits in proportion to the amount of money he or she earned on the platform. A separate and important question is whether the new regulatory regime would be opt-in or mandatory. We lean towards opt-in given the wide variety of independent contractor arrangements that exist (e.g., doctors, realtors, etc.). If companies do not opt in, they would remain subject to existing legal tests for determining worker classification.
If a company opts-in to this alternative classification — which we call “gig workers with benefits” — then once a worker reached a certain number of hours contracting with them, that worker would be entitled to a required set of tax-advantaged benefits — for example, portable benefits including paid leave, retirement savings accounts and contributions towards an individual’s health insurance premiums. All workers also should be covered by occupational accident insurance for on-the-job injuries.
On the other hand, companies that opt-in to this new regulatory framework would be required to give workers the freedom to choose their hours as well as work for other companies in the same industry. In effect, this would give employers minimal control over hours or non-compete agreements.
Companies would be required to choose, on
a year by year basis, whether they apply this new category of worker to their independent contractors. Companies are incentivized to opt-in because the benefits independent workers receive under this model are tax-advantaged. On the margin, independent workers will choose to work with companies that offer these benefits because they are worth more than pure cash compensation (which is subject to payroll and income taxes).
This new category for independent workers would come with some of the costs of regular employment, but many companies would likely still choose this option over hiring employees because their business model depends on flexible, on-demand workers. For example, a ride-hailing company would likely not be able to comply with minimum wage and overtime laws if workers set their own hours, as there would be no way to ensure that workers don’t “clock-in” during off-peak demand to sit idly and collect the minimum wage and overtime. The “gig workers with benefits” category, on the other hand, enables companies to maintain their flexible approach to engaging gig workers, without compromising the independence that the workers themselves value highly. If this flexibility went away, workers would demand more cash compensation to compensate for needing to work a rigid schedule.
This choice would allow companies to offer benefits to independent contractors without worrying that they would be reclassified as employees at either the state or federal level, while preserving the flexibility and independence that are synonymous with independent contractor status. And independent contractors would be on equal footing with the tax-advantaged employee benefits.
America’s gig workers deserve greater economic security but eliminating their jobs or undermining the autonomy of workers who need flexibility in their employment isn’t the right way to achieve that goal. Leveling the playing field to ensure independent workers and employees receive the same tax treatment on their benefits is the better path forward.
Millions of America’s smallest businesses have been severely affected by the COVID-19 crisis. They’ve seen revenue evaporate and have been forced to lay off millions of workers. Over two million small businesses had simply disappeared by June 2020. The U.S. economy now finds itself in a deep hole, with millions of small businesses gone for good—and a dried-up pipeline of new business creation.
By the end of June, the American economy also was without tens of thousands of new “employer” businesses (those with employees) that normally would have been started. The pandemic and economic crisis have wreaked havoc on existing small businesses and the new start-ups that the economy depends on for job creation and innovation.
Meanwhile, the Trump administration’s implementation of the Paycheck Protection Program (PPP), authorized by Congress to provide billions in loan guarantees through the Small Business Administration (SBA), has been flawed. The Treasury department has provided insufficient, and constantly changing, guidance to lenders and businesses. The SBA’s own Inspector General found that the administration did not adhere to Congressional intent in deploying PPP funds.
Even before COVID-19, the Trump administration had proven itself incapable of inspiring entrepreneurial confidence. Business formation had trended steadily downward over the previous two years. According to a PPI analysis of Census Bureau data earlier this year, new business applications fell steadily from the middle of 2018, after rising more or less interrupted since 2012. Business applications that have a “high propensity” of turning into employer businesses had also fallen since the middle of 2018.
The picture gets worse the deeper you dig. The pandemic recession has disproportionately affected female, Black, and Latinx business owners. By April, the number of female-owned businesses had fallen by 25 percent (compared to 20 percent for male-owned businesses). The number of Black- and Latinx-owned businesses had shrunk by, respectively, 41 and 32 percent (compared to 17 percent for white-owned businesses).
These are astonishingly high losses and they come on top of a small business landscape already tilted against minorities and women. According to Census data, going into the crisis, Blacks owned just two percent of employer businesses in this country, despite comprising 13 percent of the population. Latinos and Latinas, making up 18 percent of the population, owned six percent of businesses. Male-owned businesses were larger and with higher revenues than female-owned businesses.
What’s needed now is a major national push to reinvigorate business creation and address underlying demographic disparities in business ownership. For women and minorities, when it comes to entrepreneurship, returning to the pre-crisis status quo is simply not an option. It shouldn’t be an option for the country, either. Greater business creation and ownership among women, Blacks, Latinx, and others will accelerate recovery and strengthen resilience.
Over the last 40 years, new businesses have, on average, created about six jobs per year, per company. If one million new Black and Latinx businesses opened (replacing the ones that have closed permanently) and were joined by half a million additional new businesses, we could see about nine million new jobs created. Not all these companies would survive—in the “normal” course of economic activity—but a significant subset of them would not only survive but also thrive. Young companies that survive and grow drive the lion’s share of net new job creation each year.
Public policy should seek to help stimulate new business creation and support the survival and growth of young businesses. The focus of this effort should be on women- and minority-owned businesses. Vice-President Joe Biden has proposed renewing the State Small Business Credit Initiative (SSBCI), an Obama-era program, to focus on these businesses. Evaluations of the SSBCI found positive effects in terms of investment and job creation, but a much larger effort is likely needed. The federal government has many tools at its disposal to be leveraged in support of new business formation and to aid specific types of entrepreneurs.
PPI believes the federal government should launch a National Start-Up Initiative that aims to spur creation of at least two million new businesses as our country recovers from the pandemic recession. It would include the following key actions:
Create a startup visa for founders of new companies. These would include foreign students graduating from a U.S. university, those transitioning out of Optional Practical Training, or any H1B visa-holder after three years. The foreign-born start companies at disproportionately high rates; encouraging them to do so would give a significant boost to overall business creation. This could be accompanied by incentives for business creation in specific geographic areas or neighborhoods.
Leverage federal research funding to reform technology commercialization processes at universities. America’s research universities are the best in the world at knowledge creation, yet their ability to turn knowledge into innovation and new companies has been declining. Many promising entrepreneurial ventures get stuck in bureaucratic processes. The federal government, which provides billions of dollars to support university research, should create new incentives for those institutions that devise more effective commercialization practices and generate new businesses for their communities.
Create a new “Start-Up Tax Credit” to encourage new businesses to grow into large businesses. Modeled on the Earned Income Tax Credit, the Startup Credit is designed to help these businesses avoid the scale-up trap unintentionally posed by tax breaks and regulatory exemptions for new enterprises. For example, businesses with fewer than 50 employees are exempt from the employer shared responsibility payment of the Affordable Care Act and providing unpaid leave. While these “carveouts” certainly help small businesses get off the ground, they impose an implicit tax when those companies grow past a certain threshold. The Startup Tax Credit would mitigate that tax.
As proposed by PPI economist Elliott Long, the Startup Tax Credit would be tied to the number of employees and payroll at a small business. Firms that have been operating for fewer than five years would be eligible for a credit equal to half the employer-side payroll tax they pay on their first 100 employees, up to a maximum credit of $1,200 per employee in 2020 (indexed to inflation). The proportion of payroll taxes offset by the credit and the maximum credit per employee would then gradually phase down as businesses grow until phasing out entirely once the business reaches 500 employees. PPI estimates this proposal would cost roughly $150 billion over 10 years.
PPI has also supported the New Business Preservation Act, introduced by Sen. Amy Klobuchar (D-MN). This would allocate $2 billion in federal funding to match private investments in areas of the country bereft of startup equity investments.
These steps would help seed the ground for new business creation, just as our country needs to create millions of them to provide jobs to U.S. workers whose previous jobs vanished in the pandemic shutdown. They would also create conditions that would make America’s entrepreneurial culture more vibrant and resilient against future public emergencies of all kinds.
CAN A NEW DEMOCRATIC ADMINISTRATION RECONSTRUCT DIGITAL TRADE POLICY WITH EUROPE FROM THE ASHES OF TTIP?
As the global leader in digital trade, the United States has a big stake in ensuring that international rules facilitating its continued expansion are put in place.
The Obama Administration’s bold agenda to establish these rules across Europe and the Asia-Pacific did not yield lasting success, with the failure of the Transatlantic Trade and Investment Partnership (TTIP) negotiations and the Trump Administration’s withdrawal from the Trans-Pacific Partnership (TPP). Nonetheless, the key elements of US digital trade policy enjoy bipartisan policy support, providing a promising basis for the next Democratic administration to re-engage with Europe, our biggest digital trading partner.
Part 1 of this issue brief explains why international rules are needed to protect and facilitate digital trade. Part 2 describes the turbulent past decade in transatlantic trade relations and the growing importance of US digital trade with Europe. Part 3 explains why the US government and the European Union (EU), during TTIP negotiations, were unable to agree on a digital trade chapter, including a key provision guaranteeing the free flow of data. Finally, Part 4 suggests how two parallel sets of trade negotiations beginning early this year — between the EU and the United Kingdom (UK) and between the United States and the UK — may help a future US Administration end the transatlantic stand-off over digital trade.
1. THE CASE FOR DIGITAL TRADE AGREEMENTS
The United States leads the world in the fast-growing digital economy.1 Digital services include not just information and communications technology (ICT) but also other services which can be delivered remotely over ICT networks (e.g. engineering, software, design and finance).2 Although trade in digital services is hard to measure precisely, there is no mistaking that it has become one of the fastest-growing areas for the United States internationally. In 2017, all types of digital services made up 55% of all U.S. services exports, and yielded 68% of the U.S. global surplus in services trade.3 The beneficiaries of this burgeoning area of trade are not just the U.S. technology giants, but also many smaller and medium-sized companies that develop and sell digital services or use ICT networks for marketing products to consumers.
More than a decade ago, the Office of the US Trade Representative (USTR) recognized the US comparative advantage in digital services trade and began to pursue binding rules with a number of foreign governments. TPP negotiations were the first major step in this direction. The TPP agreement signed by the Obama Administration included provisions designed to protect against practices harmful to digital trade. It prohibited:
Customs duties and other discriminatory measures on digital products like e-books, movies, software and games;
Requirements that data or computing facilities be localized in the foreign jurisdiction;
Discriminatory treatment of crossborder data flows;
Obligations to use local technology, content, or suppliers;
Discriminatory foreign standards or burdensome testing requirements; and
Requirements for disclosing source code and algorithms.
TPP also included facilitative measures:
Requiring governments to adopt measures to protect against on-line fraud and guard consumers’ personal information;
Promoting cooperative approaches to cybersecurity; and
Facilitating the use of electronic authorizations and signatures for e-commerce, electronic payments, and other on-line applications
President Trump’s decision to withdraw the United States from TPP left US digital services companies exposed to these harmful practices in the Asia-Pacific region. From the perspective of liberalizing and expanding US digital trade, it was a spectacular own goal.4 However, USTR quickly set out to partially mitigate its effect by seeking bilateral trade accords with some TPP signatories. Digital chapters in the updated Korea-US Free Trade Agreement (KORUS), the new US-Mexico-Canada Free Trade Agreement (USMCA), and, most recently, the Japan-US Digital Trade Agreement largely duplicate the TPP’s digital trade provisions.
2. THE TRANSATLANTIC TERRIBLE TEENS
Transatlantic trade politics also has seen its share of drama over the past decade. The comprehensive TTIP negotiations begun in 2013 badly backfired. Popular fears of US corporate domination flared across Europe, the EU’s member states failed to back the project enthusiastically, and progress between US and European Commission negotiators on the many subject-matter chapters proved glacial. As the Obama Administration came to an end, TTIP talks were quietly shelved.
The Trump Administration’s trade agenda for Europe has been strikingly different. It has concentrated on rectifying the sizeable US deficit in merchandise trade with the EU, which reached an estimated record high of $168 billion in 2018.5 The President demanded that the EU, which is solely responsible for the bloc’s international trade relations, address the imbalance in such areas as steel, aluminum and automobile trade. (He also somewhat mystified Germany by insisting that it negotiate directly with the United States to reduce the U.S. goods trade deficit.) The US Government determined that a number of jurisdictions including the EU had engaged in trade practices unfair to US steel and aluminum, and imposed higher tariffs on these imported products as a consequence; higher tariffs on European autos so far remain a threat.
In the summer of 2018, European Commission (then-)President Jean-Claude Juncker managed partly to defuse transatlantic tensions by agreeing to negotiate with the United States on increasing EU purchases of US-made industrial goods and on related regulatory standard.
Juncker also committed to greater European purchases of US natural gas and soybeans. Trump in return agreed not to proceed with unilateral tariff increases for the time being. Since the advent of new EU leadership late last year, USTR Robert Lighthizer and his Commission counterpart Philip Hogan have stepped up efforts toward reaching, before the 2020 US presidential election, a limited accord in the areas identified by Trump and Juncker.
Throughout the decade, the volume of goods and services trade across the Atlantic has continued to grow steadily. The United States and the European Union are still each other’s largest trading partners. US goods exports to the EU grew to $293 billion in the first eleven months of 2018, a 13% increase over the previous year.6 US exports of all types of services to the EU reached a record $298 billion in 2017, resulting in a $66 billion surplus in 2017.7 European countries comprise four of the top ten export markets for US services, and in 2017 the Union as a whole absorbed 37% of US services exports.8
Despite the continuing growth in trade, the next Democratic administration will inherit a transatlantic trade policy environment characterized by an unusually high level of tension and distrust. TTIP’s failure appears to have stifled any impulses in Washington and Brussels simply to resume the slog towards a comprehensive trade agreement. Still, there are good reasons for Democrats to not abandon the work begun on digital trade during the TTIP negotiations.
3. THE US DIGITAL TRADE IMPASSE WITH EUROPE
Since Trump’s trade ambitions with the EU remain firmly focused on the goods deficit, the question of whether the United States should resume direct digital services trade negotiating efforts with Europe seems likely to be deferred till the next administration. From an economic perspective, the case for US re-engagement is compelling. In 2017, the United States exported $204.2 billion in digital services to Europe, generating a surplus in this area of more than $80 billion.9 International data flows, measured in terms of capacity for data bandwidth, also are heavily skewed in a transatlantic direction. Cross-border data transfers between the United States and Europe, by this measure, are 50% higher than those between the United States and Asia.10 In sum, the transatlantic area is the world’s largest for digital trade.
During TTIP negotiations, the United States proposed language close to TPP digital trade provisions, but the EU objected to a number of them. One of the most important was a US proposal to guarantee cross-border ‘free flow’ of electronic information for business purposes, and to put bounds on the extent to which European public policy measures relating to personal privacy could serve as an exception to unrestricted data flows.
The United States proposed that public policy exceptions be allowed, but that they be subjected to long-established World Trade Organization (WTO) disciplines. These WTO rules allow for exceptions for legitimate public policy objectives, so long as they do not constitute arbitrary or unjustifiable discrimination or disguised restrictions on trade, and they are narrowly tailored to achieve a public policy objective.11 Alleged breaches could ultimately be addressed through a formal dispute settlement system, if necessary.
The EU regarded the US proposal as an attack upon its unfettered discretion to apply its privacy laws to data moving across the Atlantic, and it rejected the possibility of any discipline based upon WTO rules. The EU’s rejection of objective limits on its potential public policy measures leaves it free to invoke privacy rules as a basis to discriminate against US digital service providers or to protect local competitors. The issue remained firmly deadlocked when TTIP negotiations were set aside.12 Since then, the United States and the EU have not re-engaged bilaterally on digital trade rules.
Both governments are among the eighty countries participating in a low-profile multilateral negotiation on electronic commerce (e-commerce) launched a year ago under WTO auspices, however.13 In Geneva, the United States has tabled a similar proposal to its TTIP and TPP language; the EU so far has not managed to offer a counter-proposal. For the time being, it seems unlikely that the WTO negotiations will yield quick success in settling the disagreement between the EU and the United States and other like-minded countries on regulatory limits to the free flow of data.14
A new Democratic Administration should engage bilaterally with the EU to see if there might be scope for a targeted digital trade agreement, but without softening its insistence on a rigorous free flow of data obligation. Agreeing with the EU on the proper scope for public policy exceptions should not be an impossible task, as WTO rules provide a useful framework. Moreover, it is conceivable that the new leadership of the European Commission at some point will consider jettisoning its insistence on a selfjudging privacy exception, in favor of language more consistent with international trade law.
4. BREXIT AND DIGITAL TRADE
Following Britain’s January 31 departure from the European Union, it now has embarked on the urgent task of negotiating its future economic relationship with the EU. Brexit notwithstanding, the EU will remain the UK’s principal trading partner; 45% of overall UK exports in 2018 were destined for the Continent.15 At the end of 2020, however, if no accord is reached, EU tariffs and quotas on UK exports would revert to much higher WTO tariff levels, which would have a damaging effect on UK-EU trade.
In addition to fixing tariff levels, Britain and the UK also must agree on the extent to which the UK will continue to adhere to EU regulations in a host of areas – for example, workers’ and consumers’ right, the environment, and antitrust. Many observers expect the UK-EU talks on these non-tariff barriers to be difficult and drawn out, likely stretching beyond the 2020 deadline. Despite continuing tough UK rhetoric, the parties may well settle for a ‘phase one’ agreement on goods tariffs, and grant themselves an extension into 2021 or beyond to complete the rest of a comprehensive agreement.
Setting the terms for digital trade with the EU will be particularly important for Britain. UK services exports to the EU yielded a £77 billion surplus in 2018, more than offsetting a deficit in goods trade.16 Approximately three-quarters of Britain’s data flows are with EU countries17, making harmonization with the Continent on privacy regulation crucial for its thriving data-dependent businesses, such as financial services.
In its negotiating mandate for the future economic partnership agreement with the UK, the EU specifically calls for provisions facilitating digital trade, but also indicates an intention to “address data flows subject to exceptions for legitimate public policy objectives, while not affecting the Union’s personal data protection rules.”18 The UK’s counterpart negotiating mandate similarly calls for measures to facilitate the flow of data to and from the EU, and expresses an ambition to go beyond the digital trade provisions in the EU’s trade agreements with other countries.19
The Union previously had pledged to decide before the end of 2020 whether the UK’s postBrexit privacy protections are ‘adequate’ in relation to those on the continent; an adequacy determination would be by far the most favorable and efficient legal basis for data flows across the Channel.20 The EU should have leverage in this separate negotiation, and as a result the UK’s future data protection regime should remain generally close to the EU’s General Data Protection Regulation (GDPR). An adequacy finding is not a foregone conclusion, however, as Britain may be reluctant to alter its wide-ranging surveillance laws.21
The United States is also a very important trading partner for the United Kingdom, accounting for 15% of Britain’s total trade.22 Nearly a fifth of Britain’s exports head across the Atlantic, more than double the share it sends to Germany, its next-biggest trading partner.23 US services trade with the United Kingdom exceeds goods trade, and is growing; US services exports measured $74.1 billion in 2018, generating a surplus of $13.3 billion that year with Britain.24 There are more transatlantic undersea cable connections transmitting data directly between the United States and the United Kingdom than with the rest of Europe combined.25 Foreign affiliates of U.S. multinationals supply more information services in the United Kingdom than in any other European country.26
The Office of the US Trade Representative and the UK Department for International Trade started negotiations on a bilateral trade agreement in May. The United States seeks a comprehensive agreement with the British, including a chapter on digital trade in goods and services and cross-border data flows modeled on the most recent U.S. bilateral successes with other countries.27 The United Kingdom’s negotiating objectives with the United States are broadly consistent with the United States perspective on digital trade.28 They specifically mention the importance of preserving UK data protection rules in an agreement with the United States.29 The United States officially attaches the highest priority to these negotiations and aims to complete them in 2020.30 Privately, US officials acknowledge that the United Kingdom will have to give greater priority this year to redefining its all-important trading relationship with the EU, before US-UK talks can advance definitively.
The most that US and UK trade negotiators may be able to deliver this year is a partial agreement setting tariffs and quotas for goods. A new Democratic administration would be well-advised to build upon whatever progress is achieved with the UK this year, and to give particular priority in the future to agreement on digital trade. The latter could even take the form of a stand-alone agreement on digital trade, as was done in the Japan – United States Digital Trade Agreement, if a comprehensive US-UK trade agreement proves a longer-term prospect.
The United States and the United Kingdom should be able to make rapid progress on many aspects of a digital trade agreement. Historically, both governments have shared a philosophical commitment to open international trading regimes. Both have highly developed digital economies and leading-edge digital services companies. Each favor free data flows and opposes data localization measures. Intangible factors including similar legal traditions also could speed talks.
The long arm of the European Union will constrain the United Kingdom’s negotiating room on digital trade with the United States, however. The EU may insist that, as part of the price for adequacy, the UK agree not to undermine the Union’s position on data flows in any of the UK’s future trade agreements with third countries. The United States, for its part, presumably would take the same position on this issue as it took in TTIP – that legitimate privacy measures are those permitted under WTO principles rather than by EU fiat.
Still, in the short term, the United States may be better off tackling this tough issue with the United Kingdom than seeking to resolve it bilaterally with the EU. The British are in a tough negotiating position: they must find a way forward on data flows with both the EU and a range of important third country trading partners. UK negotiators will need all their creative legal talents to find a way through this intersection of digital trade and privacy law. If they succeed, the payoff in a settled legal landscape for digital trade across both the Channel and the Atlantic eventually could be substantial. Brexit has generated considerable trade uncertainty, but it also ultimately could yield dividends for digital trade.
Authored by Ken Propp, Professor of European Union Law, Georgetown University Law Center; Senior Fellow, Atlantic Council; PPI Fellow
In May 2013, Edward Snowden publicly disclosed a trove of highly-classified information about US signals intelligence programs around the world, unleashing a torrent of outrage both in the United States and abroad. Nowhere did his revelations have a bigger impact than in Europe, where the extent of activities conducted by the US National Security Agency, sometimes with the cooperation of foreign intelligence services, came as a huge shock.
European Union officials were chagrined — and a little flattered — to learn that internal conversations with their overseas delegations had been intercepted. German headlines trumpeted the alleged tapping of Angela Merkel’s personal cellphone. Snowden’s revelations sharply disrupted the generally cooperative character of US-EU relations. “It seemed that the entire well of US-EU relations had been poisoned by the fallout from the Snowden affair,” the US Ambassador to the European Union during the period has written, citing its political impact on negotiations over a potential transatlantic free trade agreement, among other effects.
In Brussels, the evident scale of NSA surveillance was perceived as a challenge to ‘data protection’, the extensive body of privacy law that is one of the EU’s signature regulatory initiatives. Snowden’s disclosures provoked an almost existential crisis in Europe about whether privacy protection even mattered. Not long after, European privacy activists went to court to challenge the legitimacy of data transfers to the United States, in a series of cases that rumble on to this day. Their efforts have upended one US-EU data transfer agreement, the Safe Harbor Framework, and now threaten to do the same for the successor Privacy Shield, as well as for contract-based privacy protections.
The political impact in Europe of the Snowden revelations inevitably has diminished over the past seven years. Today Europeans worry as much about weak privacy standards in authoritarian countries as about US surveillance practices. In addition, as governments around the world struggle to overcome COVID-19, they see data-tracking technologies as a key part of the solution – and worry less about the attendant privacy risks. Indeed, European governments are embracing data-tracking to a far greater extent than is the United States.
The forthcoming ruling by the European Court of Justice (ECJ)in the Snowden-legacy cases – due to be handed down on July 16 — has the potential to do more than reopen old wounds. Even more ominously, it may cause disarray in transatlantic digital commerce – at a time when governments cannot afford further economic damage.
A new Democratic Administration would be forced to confront the unresolved challenges of keeping data flowing across the Atlantic. How should the US Government respond if the ECJ again finds US privacy protections against surveillance of Europeans’ personal information to be insufficient? Is it finally time for the United States to directly challenge Europe’s efforts to impose its privacy rules on US national security data collection? Is there still room for compromise? Could a comprehensive US privacy law be part of the solution?
Privacy Rules in Transatlantic Commerce
The European Union prides itself on regulating commerce in a manner that is extremely solicitous of potential harms to individuals. It follows the ‘precautionary principle’, under which a product may only be introduced onto the European market if it can be proven to present no risk to consumers. Applying this standard is harder in the case of services than goods, especially when a service is provided from abroad and entails the transfer of personal data outside of Europe.
The EU’s data protection law, the General Data Protection Regulation (GDPR), provides a way to minimize the risk that individuals’ personal data will be misused when it is transferred abroad. It does so by establishing a ‘border control’ regime for data transfers from Europe. An international data transfer may only occur if there is a legal arrangement in place “to ensure that the level of protection of natural persons guaranteed by this Regulation is not undermined” in other jurisdictions. In other words, a European can rest assured that a company processing his or her data abroad does so in broad conformity with the EU’s privacy rules.
Data has become a central commodity in transatlantic – and global – commerce of all types, not just for services which are delivered using information and communications technology. When a European consumer makes purchases a good from a US online marketplace, his or her personal data travels to America through undersea cables as part of the transaction. Multinational companies are constantly shifting personal data around the globe, for services as mundane as personnel management. Global data transfer rates expanded more than 40 times over the decade between 2005 and 2014, and continue to grow rapidly, particularly across the Atlantic. Cross-border data transfers between the United States and Europe are 50% higher than those between the United States and Asia.
A company importing personal data from Europe into the United States typically chooses between two principal transfer methods, outlined in the GDPR, for guaranteeing the continuity of privacy protection. One is to subscribe to the privacy principles set forth in the US-EU Privacy Shield framework. More than 5300 companies – many small- and medium-sized businesses among them — have done so. The EU deems data transfers made by these companies to the United States to afford an ‘adequate’ basis of privacy protection. The US Commerce Department monitors signatory companies’ compliance with the Privacy Shield principles, and the Federal Trade Commission (FTC) has authority to enforce against those that fail to honor their commitments.
A company’s main alternative to joining the Privacy Shield is to insert into individual contracts for data transactions certain standard privacy protection clauses that have been pre-approved by European data protection authorities (DPAs). In other words, a data importer outside the EU assumes a contractual obligation to handle data in conformity with the privacy terms laid down by the exporter inside the Union. Companies, especially larger ones, widely use standard clauses to transfer personal data from Europe to many parts of the world, not just across the Atlantic. European DPAs enforce compliance with standard privacy clauses.
Privacy Rules and National Security Surveillance Collide
The Privacy Shield, while popular with companies, rests on a shaky legal foundation. It was hurriedly negotiated between Washington and Brussels after the ECJ in 2015 had effectively invalidated its predecessor, the 2000 Safe Harbor Framework. The court did so in response to a petition from Austrian privacy activist Max Schrems, who had read Edward Snowden’s allegations that US social networks were providing foreigners’ communications to the NSA, and believed (without any supporting evidence) that his own Facebook communications had made their way to Fort Meade.
Facebook at the time was using the Safe Harbor Framework as the legal basis for its data transfers from the Continent. Schrems pointed out that a provision in the Framework in fact excused a company from complying with its privacy protections if confronted by a US national security agency’s demand for personal data. Such demands, the ECJ decided, permitted the NSA “to have access on a generalized basis to the content of electronic communications,” and “must be regarded as compromising the essence of the fundamental right to respect for private life…” contained in the EU’s Charter of Fundamental Rights. The ECJ went on to find deficiencies in a number of other features of Safe Harbor, including its failure to provide aggrieved individuals with a right of effective redress for violation of its provisions.
Schrems’ case represented the collision of two worlds – the straightforward one of companies transferring personal data for purely commercial purposes, and the shadowy one of governments obtaining these communications for purposes of protecting national security. It shone a spotlight on the United States, not only because American internet platforms dominate the data transfer business worldwide, but also because US intelligence agencies operate on a much larger scale than do European counterparts.
The EU’s negotiations with the United States to remedy the deficiencies of the Safe Harbor faced legal as well as political hurdles. Since the EU Charter of Fundamental Rights is effectively the equivalent of the US Bill of Rights, ECJ judgments applying its provisions have the character of constitutional jurisprudence. The European Commission, the EU’s executive arm, must scrupulously respect the Court’s holdings, and has only as much international negotiating room as the judges have allowed.
The Privacy Shield remedied some of the ECJ’s criticisms of the Safe Harbor Framework. It strengthened the privacy principles, beefed up the roles of Commerce and the FTC in overseeing compliance, and created an administrative channel for Europeans to complain to an ombudsperson in the State Department if they suspected that the NSA was sifting their personal information.
The United States even sought to address European concerns about national security surveillance. A pair of letters appended to the Privacy Shield from Office of the Director National Intelligence (ODNI) General Counsel Robert Litt described recent changes to the US legal framework for signals intelligence. Litt highlighted the Obama Administration’s issuance, in the Snowden aftermath, of a policy directive (PPD-28) that extended partial privacy protections to foreign nationals and limited the NSA’s bulk collection of certain types of personal data. He also pushed back on the ECJ’s impression that America’s national security data collection efforts were vast. “Bulk collection activities regarding Internet communications that the US Intelligence Community performs through signals intelligence operate on a small proportion of the Internet,” Litt wrote. What US negotiators steadfastly refused to do, however, was to agree to any further limits on their government’s wide-ranging legal authority to surveil Europeans’ communications.
Europe’s privacy activists were distinctly unimpressed by the new, improved transatlantic data transfer arrangement. Soon after the Privacy Shield took effect, a French group filed suit against it in the ECJ. Max Schrems separately chose to refocus his sights instead on standard contract clauses, the alternative transfer mechanism which Facebook, like many companies, had adopted in the interval following the collapse of the Safe Harbor Framework. Schrems observed that standard clauses – like the Safe Harbor — also excuse a company from its privacy protection obligations when confronted by a foreign national security agency’s demand for personal data. He therefore claimed that standard clauses were equally deficient from the perspective of EU fundamental rights. His reformulated complaint gradually made its way back to the ECJ.
Thus, the EU court was presented with parallel challenges to the two major data transfer mechanisms in use with the United States, each case posing similar underlying questions about US surveillance law and practices. At the ECJ’s hearing last summer on Schrem’s challenge to standard contract clauses, the lead judge in the case, Thomas von Danwitz of Germany, also posed questions addressing the validity of Privacy Shield. Suddenly the prospect appeared of the ECJ issuing one judgment deciding the US surveillance issues common to both. US companies which depend on transatlantic data transfers realized they could be facing the perfect storm.
Reckoning Day at the ECJ
In the first stage of deciding an important case like this, a senior court jurist known as an Advocate General (AG) issues an opinion exhaustively analyzing the issues and recommending a resolution. Some months later, the judges release a final judgment, which usually – but not necessarily — follows the AG’s recommendation. The 97-page opinion of AG Henrik Saugmandsgaard Øe of Denmark, issued on December 19, 2019, generated equal measures of relief and alarm for the US government and companies.
Øe first examined whether standard contractual clauses used for transatlantic commercial data transfers measured up to the EU’s fundamental rights standards. He acknowledged that they foresaw the possibility of a foreign data importer being ordered to turn over data to its host government for national security reasons. However, Øe added, the European data exporter, once notified by the foreign importer of the local government’s demand, in turn could ask the relevant EU member state DPA to prohibit the affected data transfer outside the Union from happening. He therefore advised the judges not to take the “somewhat precipitous” step of reaching a broad conclusion about whether standard clauses sufficiently protected Europeans’ privacy rights until a DPA had had an opportunity to consider the particular circumstances of an NSA demand to Facebook. If the ECJ adopts Øe’s perspective, Facebook and the many other companies using standard clauses in transatlantic commerce will, at a minimum, have bought some time, until national DPAs can assess the clauses’ effectiveness in contested cases.
Had the Advocate General stopped there, his opinion would have been embraced as a reprieve for a principal means of transatlantic data transfers. But Øe then went on to analyze the validity of the Privacy Shield itself, paving the path for Judge von Danwitz and his colleagues to decide the merits of both transatlantic data transfer instruments in one combined judgment, if they so choose.
The AG did find Privacy Shield to be an improvement over the Safe Harbor Framework in certain respects. In particular, he concluded that NSA surveillance conducted under the authority of the Foreign Intelligence Surveillance Act (FISA) did not amount to ‘generalized access’ to the content of electronic communications, since intelligence officials must apply selection and filtering criteria before accessing personal data. If the ECJ agrees, one of the important factual errors it made in the first Schrems judgment will have been corrected.
However, Øe criticized numerous other features of US surveillance law and of the Privacy Shield. He was alarmed by the US government’s extensive reliance on non-statutory surveillance authorities such as Executive Order 12333. He similarly was concerned that privacy protections for non-Americans conferred by PPD-28 could be undone by executive fiat (as indeed President Trump was rumored to be considering early in the current Administration). The AG likewise was unimpressed by the powers of the State Department ombudsperson to operate as an administrative remedy for Europeans, pointing out that the office lacks both investigative powers and independence from the executive branch. It is hard to avoid the conclusion that the Advocate General regards data transfers under the Privacy Shield as failing fully to guarantee EU privacy rights.
The ECJ’s judgment will be handed down on July 16. Most observers agree that the court will find deficiencies in the transatlantic data transfer regime, but they diverge on how far it will go. Will the judges assess only the validity of standard contract clauses, as the Advocate General urges, or will they go beyond to draw conclusions about the Privacy Shield as well? If the court finds Privacy Shield wanting, will the arrangement effectively be invalidated with immediate effect, as occurred in the case of the Safe Harbor? Or might the ECJ instead grant the European Commission a reasonable interval to renegotiate the Privacy Shield with the United States?
Towards a US Strategy for Ending the Privacy Wars
Ever since the Snowden allegations erupted, American companies have looked in vain for a lasting legal foundation for vital transatlantic commercial data transfers. The US Government’s own frustration also occasionally has emerged into public view. In the wake of the Schrems judgment’s sharp criticism of US surveillance practices, President Obama pointed to the deafening silence from European governments on the important role US intelligence plays in protecting Europe’s national security:
…a number of countries, including some who have loudly criticized the NSA, privately acknowledge that America has special responsibilities as the world’s only superpower; that our intelligence capabilities are critical to meeting these responsibilities; and that they themselves have relied on the information we obtain to protect their own people.
If the ECJ again rules against transatlantic data transfer mechanisms, it is not hard to imagine a US Administration concluding that negotiated solutions with Europe have not worked and turning to a confrontational posture. It certainly has the tools. The Executive Branch could turn off intelligence sharing with European allies and wait for the yelps from their security services to reach Brussels. Alternatively, US internet platforms might be quietly urged temporarily to stop providing the services that Europeans daily depend on.
US companies surely would press the Administration to pursue a further negotiated privacy arrangement with the European Union, however. Some ECJ objections to US surveillance laws could be addressed through Congressional action and reflected in a revised Privacy Shield. But not all judicial criticisms would have a reasonable prospect of Congressional remedy – so it is important that the court not overreach.
The ECJ might, for example, find that important and long-established US surveillance authorities embedded in executive order rather than statute do not measure up to European fundamental rights norms. The court also could demand specific changes to US bulk surveillance practices, such as the methods the US intelligence community uses for selecting and filtering which tranches of personal data to scrutinize. It is difficult to foresee Congress being sympathetic to such concerns, particularly in the current turbulent era of transatlantic relations.
The ECJ might well also point to the need for the United States to strengthen the institution of the ombudsperson as an arbiter of Europeans’ complaints about surveillance of their personal data. Congress should sympathetically consider making the ombudsman independent of executive branch influence and granting it autonomous investigative powers as well. There is in fact an existing agency within the US government well-suited to take on such a remedial function — the Privacy and Civil Liberties Oversight Board (PCLOB). Congress could grant the PCLOB, a small but respected independent agency currently charged with privacy oversight of US counter-terrorism laws, the additional authority and resources to scrutinize national security access to personal data transferred to the United States for commercial purposes.
The ECJ additionally may confirm Advocate General Øe’s doubts about the legal durability of PPD-28. Transforming privacy elements of this directive into the form of a statute would greatly strengthen European confidence that they cannot easily be undone. Congressman Eric Swalwell (D-CA) in fact proposed this step in an unsuccessful amendment to the 2018 bill reauthorizing Section 702 of the Foreign Intelligence Surveillance Act. Legislating portions of PPD-28, together with strengthening surveillance oversight by an independent ombudsperson, would go a long way towards overcoming European legal objections to the Privacy Shield and standard contract clauses.
Beyond these concrete steps, the very act of the US Congress passing comprehensive privacy legislation would be persuasive evidence to Europe and the rest of the world that the United States takes seriously key privacy principles such as limits on consent and on use of data, and redress. Congress in recent years indeed has inquired into the GDPR, taking testimony from leading European privacy regulators about how their experience could inform US comprehensive legislation.
Most importantly, enacting a comprehensive US privacy law would present a credible case to Brussels that transatlantic privacy protections are broadly congruent, even if they inevitably diverge in some respects. No longer would the US Government be condemned to repeated, piecemeal attempts to disprove alleged deficiencies in its system of privacy protection. Instead, the EU and the United States finally could develop a definitive regime for transatlantic commercial data transfers based on reciprocal respect for each other’s legal systems.
Congress showed it could exercise global leadership on international data transfers when it enacted the 2018 CLOUD Act to allow law enforcement authorities rapid and efficient access to electronic evidence located abroad. Foreign authorities may only obtain e-evidence located in the United States if their requests meet due process standards comparable to the rigorous ones of US criminal law.
Ever-larger portions of the future transatlantic economy will run on data flowing in both directions. If the United States and Europe are definitively to end the privacy wars that intermittently have flared between them, the protections that accompany the transatlantic movement of personal data must become a two-way street as well.
A broadband connection has become an essential lifeline, especially during COVID for our shuttered offices, schools, places of worship, and retail stores. For many, a digital connection has become the safest and most timely way to seek medical attention, continue education, assist customers, and check-in with friends and loved ones.
95% of American homes have ways to access a broadband connection today – a result of the nearly $2 trillion in investment over the last two decades that flowed from a pro-competition, light-touch regulatory approach. That’s good news.
The bad news is that in rural America, 22 percent of homes lack access to a fixed broadband connection at the FCC minimum 25/3 Mbps speed because it’s too expensive to build in these sparsely populated communities. That puts rural America at a distinct economic disadvantage to the rest of the country. And that’s wrong.
Much like the challenges of rural electrification, it will take an all hands-on deck approach and the right policy framework to wire rural America with broadband.
The recently passed CARES Act included more than $300 million for rural broadband and telehealth services. The Rural Digital Opportunity Fund (RDOF) — the FCC’s next step in bridging the digital divide — will direct up to $20.4 billion over ten years to finance up to gigabit speed broadband networks in unserved rural areas, connecting millions of American homes and businesses to digital opportunity.
The Connect America Fund (CAF) — part of the Universal Service High-Cost program — is an FCC program designed to expand access to voice and broadband services for areas where they are unavailable. In the CAF Phase II, the FCC will provide funding to service providers to subsidize the cost of building network infrastructure in census blocks where internet service is lacking.
But these programs can only succeed if we learn from the mistakes of the past and instead focus on building out in unserved areas and removing anti-competitive red tape.
These buildout programs often mandate nearly three-decade-old eligibility requirements that were initially designed to ensure that companies who sought federal funding could get the job done. But today, these eligible telecommunications carrier (ETC) requirements, are doing the opposite – they are screening out some of the most able-bodied competitors and slowing down progress.
Rather than defining one set of federal eligibility requirements, the current ETC rules allow states to set up a patchwork of pet projects – poorly defined Green New Deal requirements, forcing broadband builders to serve as back-up electrical utilities, and other collateral projects — that data has shown have nothing to do with universal buildout in rural America. Many of the most experienced broadband companies simply don’t participate as a result.
To cut the mountains of red tape and speed up broadband expansion to those Americans most in need, Rep G. K. Butterfield (D-NC) introduced the Expanding Opportunities for Broadband Deployment Act. This bill will create one standard to ensure the best companies are competing under the same rules nationwide. This is likely to spur competition, which will in turn mean lower costs and better results for taxpayers and rural Americans.
If we want meaningful results in connecting rural America to broadband, Congress should pass the Butterfield legislation and retire the patchwork ETC process that is holding back progress.
One national, pro-competition standard is just what we need to get better and more cost-effective solutions to the table, and to finally make real progress in solving the lack of broadband in rural America problem.
We’re used to thinking of COVID-19 testing as an activity that is led by government public health agencies, supported by private testing laboratories such as Quest Diagnostics and LabCorp.
But American businesses have a broader role to play. Workplace-based testing for COVID-19 infections is shaping up to be a crucial component of managing the virus and getting the economy restarted again.
In mid-April Scott Gottlieb, former head of the FDA, wrote a op-ed (1) for the Wall Street Journal where he argued that:
As employees return to work, perhaps as early as May, employers can offer screening at their place of business. Rapid diagnosis and containment will be a critical part of limiting spread.
Government policy can encourage employer-based testing in two ways. First, without cutting corners, federal and state regulatory agencies should be open to approving employer-based testing laboratories that will add significantly more national testing capacity. Second, the U.S. should consider subsidizing sick leave for workers that test positive, in order to encourage more companies to do testing.
Oddly enough, the CDC is still treating testing as a scarce resource, as it has since the beginning of the pandemic, and actively discouraging employer use of tests. The current CDC guidelines (2) for employers suggest checking workers for virus symptoms or elevated temperatures, but goes on say: “[e]mployers should not require a COVID-19 test result ….to return to work.”
But to be polite, that attitude from the CDC misses the point. President Donald Trump has explicitly made testing the responsibility (3) of state governments, in conjunction with the leading private labs, and they simply don’t have the resources to carry the whole load. It’s time to harness the financial heft of the business sector to pick up some of the testing burden.
Even in the face of CDC discouragement, companies such as Amazon, U.S. Steel (4), Whirlpool (5), Microsoft, Intel and Las-Vegas based Wynn Resorts are either considering or already exploring (6) workplace-based testing. Amazon (7), in particular, is taking steps towards (8) setting up its own laboratory facilities in order to regularly test all staff, including those without symptoms, according to CEO Jeff Bezos in his letter to shareholders. According to its latest earnings report, the company expects to spend “hundreds of millions” of dollars in the second quarter to develop its own COVID-19 testing capabilities.
What are the pluses and minuses of workplace-based testing? Done right, it benefits workers, businesses, and the broader society. Individuals get a safer work environment and sick leave if they test positive. Businesses get to stay open in a sustainable way. And public health is improved, especially if the information gained from the test can be used to inform contact tracing. It becomes a bridge to broader testing. Workplace testing gets us a lot closer to the 500,000(9) to 1,000,000 (10) tests per day that many experts think are necessary.
Done wrong, workplace-based testing can be used as a hammer against workers, violating privacy without gains. The key is to understand what workplace-based testing can do and what it can’t.
It’s important to realize that we’re talking about tests for current COVID-19 infection, not tests for antibodies or immunity. Some people have suggested favoring workers who have coronavirus antibodies, but it’s going to be some time before we know how long immunity (11) lasts. As long as that’s unknown, companies have to test for infections, not antibodies.
A company that wants to do workplace-based testing has two key decisions. First, will the tests be voluntary or mandatory? The safest thing for workers is to test everyone at regular intervals, but that’s more expensive.
Companies also need to choose whether to contract for third-party testing services, to buy tests for use in in-house clinics, or to actually set up their testing laboratories. Most businesses will choose one of the first two options. Currently, each cartridge for Abbott Laboratories’ rapid coronavirus tests costs (12) $40. The Cepheid point-of-care test requires a cartridge (13) that sells for $35. In addition, companies have to figure in the cost of the equipment and trained personnel to administer and run the tests. Medicare is reimbursing as much as $100 per test. (14)
But these numbers will likely come down quickly as more tests come on the market. Big companies can buy in bulk, which can help bring down the costs.
Moreover, the largest companies have the financial strength and incentive to set up their own lab facilities, if they choose. That would add new testing capacity to the United States and take the pressure off both the supply of tests from manufacturers and off the leading private labs. LabCorp and Quest Diagnostics are both in the Fortune 500, but they are dwarfed by companies such as Amazon, Walmart, Target and even Tyson Foods, which has been hit by outbreaks (15) at some of its meat-processing plants.
One reason for large companies to choose the third option– setting up their own lab facilities— is economies of scale. COVID-19 is not going away, and the nasal swabs or saliva (16) analysis will have to be repeated regularly, both because of the possibility of false negatives and because workers can obviously pick up the coronavirus at home or in the community. At the volumes needed, it wouldn’t be surprising to see the marginal cost per test drop to $10-$20 per test. (that’s the added cost of running an additional test, not including capital costs).
Setting up a testing lab is not a one-day process, by any means. Companies that go this route have to hire a lab director and other professionals, buy lab equipment, and get CLIA (Clinical Laboratory Improvement Amendments) certification from the federal and appropriate state governments. The new labs also have to develop their own testing protocols for COVID-19, and get them approved, though that will be easier as more companies go this route.
None of these steps are true blockers for a motivated company that want to do this. But they do require the company to invest some money, and involves going through a regulatory approval process for each state where testing is done. State governments can help by encouraging companies to invest in testing laboratories that add more capacity.
However, as an economic and social decision, workplace testing is a positive for both employees and employers. Everyone wants to earn a living, and no one wants to die. So workplaces that pay more attention to safety will be more attractive to workers, especially if a positive test comes with paid sick leave and payments for care.
Similarly, as the cost of testing goes down, it looks increasingly appealing from a business perspective as well. A large body of economic literature (17) on the risk-pay tradeoff implies that businesses that don’t test will have to pay significantly higher wages in order to attract workers, even in these hard times. Workers have a good sense of their risk level, and vote with their feet accordingly. By contrast, businesses that implement an effective testing strategy will find themselves able to run their operations more efficiently and profitably, while protecting their workers.
The largest businesses are likely to be the ones that lead the way towards testing. Let’s do an illustrative calculation. Pre-pandemic, there were roughly 1400 firms with employment over 10,000 workers in the United States. Together these firms employ roughly 30 million workers. Not every big company will test, of course, but if 20% of these big-company workers are tested every two weeks, on average, that comes to an average 400,000 tests per day. Assuming a marginal cost of $10-$20 per test, that comes to $4-$8 million per day. That’s on top of the sizable capital cost of setting up the testing laboratories. (Amazon’s large outlays partly reflect the costs of being the pioneer in this area).
In addition, workers that test positive should be eligible for paid sick leave, probably averaging two weeks. That’s likely to raise payroll costs more than the testing itself. If we assume that 5% of the tests come back positive, that’s 300,000 additional workers on sick leave at any time. Assuming average compensation costs of $25-$35 per hour that raises annual compensation costs to large companies by $6-9 million per day. That’s a significant cost, but it can be absorbed or passed onto consumers as an essential part of doing business.
To be a good proposition for workers and businesses, testing doesn’t have to be perfect but it does have to be systematic. Businesses can’t stop and start — they have to pick a strategy and stick to it. And the strategy has to include a commitment to take immediate steps when positives occur, as they inevitably will.
It should be noted that there’s one part of the labor market where the risk-pay tradeoff doesn’t hold, and that’s immigrant workers, especially from Mexico. According to a 2010 economic study (18), Mexican immigrant workers “on average receive zero or very low levels of wage premiums for fatal injury risks.” The key factor appears to be whether the immigrant worker is fluent in English. So industries that employ a larger number of Mexican immigrants who are not fluent in English — notably agriculture and food production — may not be under the same pressure to test. That suggests a need for special scrutiny by state and local governments.
Legally, testing by employers (19) is on firm ground during a pandemic, as part of providing a safe workplace. The EEOC has noted that:
Employers may take steps to determine if employees entering the workplace have COVID-19 because an individual with the virus will pose a direct threat to the health of others. Therefore an employer may choose to administer COVID-19 testing to employees before they enter the workplace to determine if they have the virus.
In addition, the EEOC has noted that while employers must keep health records in a confidential file, they may disclose the name of employees that have COVID-19 to public health authorities.
That’s important. The information from the tests has to be available to the public health authorities for contact tracing and potential isolation of infected people.
While much of testing can be decentralized to workplaces, contract tracing and followup is something only the public sector can take the lead on, aided perhaps by the sort of technological capabilities that companies such as Apple and Google are building.
The public health system needs to be ready to act on the information garnered from employer testing with sustained contact tracing, to understand how the worker got infected and to potentially isolate their families and contacts who may be asymptomatic and not realize that that they are infectious. So business testing makes sense as a complement to investment in public health contact tracing as well.
The government can give businesses an incentive to do the right thing by subsidizing sick leave that is the result of a positive test. That would encourage more companies to test their workers.
The government could also help by finding a way to streamline the approval process for corporate testing labs in multiple states, in response to the pandemic. Simply having the CDC come out in favor of workplace testing would make things easier. And while the EEOC statement is reassuring, it may also be helpful for Congress to address potential liability issues connected with employer testing, which is the right thing for workers.
What about the downsides of workplace-based testing? It clearly raises issues of privacy, especially if the names of people who test positive are passed onto public health authorities. It’s essential that workers not be penalized for testing positive. Nor should they be penalized for being in a vulnerable category, like being over 60 or immune-compromised. Indeed, comprehensive testing makes it easier to employ such people.
Another issue is whether small businesses can afford workplace-based testing that allows them to compete with big businesses. Some provision should be made for allowing small businesses to take advantage of the testing supply chains that large companies develop, perhaps by giving them access to low-cost testing.
In the end, testing in the workplace is an affordable proposition. It will raise costs and likely prices, and lower profits, but that’s a small price to pay for a safer workplace. President Trump is eager to reopen the U.S. economy. But he doesn’t seem to understand that will require much more testing that we are doing today. Sustained business testing will take a significant burden off the public health system. If a significant number of large employers start workplace testing, it has the potential for reaching a large number of Americans quickly. It’s the right thing for businesses to do.
Fears about the novel coronavirus, the economic meltdown, and prolonged self-isolation are taking an emotional toll on Americans. Calls to the federal mental health crisis hotline are 900 percent greater than this time last year.
In normal times, one in five American adults deals with mental health issues. Anxiety is the most common mental disorder; 6.8 million people in the U.S. — roughly 3 percent of the adult population — suffer from generalized anxiety disorder.
But in the unique moment of time we find ourselves in today, Americans are currently dealing with increased stress, decreased cash flow, and an inability to leave their house to seek mental health services.
Tele-health poses an opportunity to address some of those issues.
The COVID-19 pandemic is already a world-historic event, both in terms of health and economics. For Brazil, no one knows how far the disease will go and how bad the damage will be.
Yet as people around the world engage in “social distancing” in order to stem the virus, the importance of connectivity and in particular wireless connectivity stand out. Mobile phones enable people and business to communicate and be productive even when they have to stay physically apart. In particular, mobile apps are becoming even more embedded into daily life.
In this paper, we focus on Brazil’s App Economy: Those app developers and other workers who create, maintain, and support an ever-expanding range of apps for health, communications, ecommerce, education, transportation, banking, and smart homes. The size of an App Economy workforce in a country is indicative of the rate at which that country is embracing the digital transformation and how well it will be positioned as the global economy recovers from the pandemic.
As of January 2020, before the global pandemic took hold, we estimate Brazil has 277,000 App Economy jobs.1 We find 178,000 App Economy jobs to belong to the iOS ecosystem, and the Android ecosystem to total 228,000 jobs. (These numbers sum to more than the total of Brazilian App Economy jobs because App Economy jobs can belong to multiple ecosystems).
INTERNATIONAL COMPARISONS
How does Brazil’s App Economy compare with other countries? In absolute terms, Brazil’s 277,000 App Economy jobs as of January 2020 compares well with Canada, which had 262,000 App Economy jobs as of November 2018.2 Brazil’s App Economy rivals that of some important European Union members.3
For example, we estimated Germany to have 296,000 App Economy jobs as of July 2019 and the Netherlands to total 212,000 App Economy jobs as of July 2019. On a smaller scale, Argentina had 40,000 App Economy jobs as of February 2018 (Figure 2).4
EXAMPLES OF APP ECONOMY JOBS
The Brazilian App Economy is extensive both in terms of its depth and range of industries. We examined App Economy job postings as of March 2020, as the global pandemic was starting to take hold.
The Brazilian ICT sector was undoubtedly hiring App Economy workers. As of March 2020, content platform Encripta S/A was searching for a senior Android developer in Sao Paulo. IT company Indra Sistemas, S.A. was seeking a senior Java developer with knowledge of iOS and Android in Sao Paulo. Software firm TOTVS was looking for a junior front-end developer to work on mobile apps in Joinville. Mobile app development company Tap4 Mobile was hiring a mobile developer with knowledge of Swift programming in Manaus. Software developer Supero was searching for an Android developer with experience in Kotlin and Swift in Florianópolis.
The financial sector was actively hiring App Economy workers. As of March 2020, payment processor Stone Tecnologia was seeking a front-end developer with experience in iOS and Android in Sao Paulo. Financial firm SPC Brasil was looking for a senior mobile developer with iOS experience in Sao Paulo. Banking cooperative Sicredi was searching for an iOS developer in Porto Alegre. Financial research firm Empiricus was hiring a senior mobile specialist with knowledge of iOS in Sao Paulo. Payment platform PicPay was seeking an iOS developer in Vitória. Banking company Banco Itau was looking for mobile engineers with iOS and Android experience in Sao Paulo.
But other industries are also hiring App Economy workers as digital technology spreads into the physical industries. Pulp company Eldorado Brasil was hiring an Android developer in Campinas. Farming equipment manufacturer John Deere was searching for a junior backend software engineer with knowledge of Java or Kotlin in Indaiatuba. As of February 2020, appliance manufacturer Whirlpool Corporation was seeking a senior information systems analyst with experience in iOS and Android in Sao Paulo. Agricultural company Cargill was looking for a senior software engineer with experience in Xamarin and Swift in Sao Paulo. Medical e-learning company MedMKT was hiring a developer with knowledge of iOS and Android in Moncoes.
As of March 2020, retail company Via Varejo SA was searching for an Android developer in São Caetano do Sul. Event platform Uhuu! was seeking an Android developer in Porto Alegre. Travel aggregator Hurb – Hotel Urbano was looking for an Android developer in Rio de Janeiro. As of February 2020, ecommerce logistics company ASAP Log was hiring a fullstack developer with Android experience in Curitiba.
Media company Grupo Global was searching for iOS and Android developers in Rio de Janeiro as of March 2020. News company globo.com was seeking an iOS developer in Rio de Janeiro. As of February 2020, content publisher Secad was looking for a mobile application developer with experience in iOS and Android in Porto Alegre.
Academic institution Fundação Armando Alvares Penteado was hiring a mobile iOS developer in Sao Paulo as of March 2020. Research nonprofit Instituto de Pesquisas Eldorado was searching for an Android developer in Brasília. As of February 2020, research organization Atlantico Institute was seeking a junior test analyst with knowledge in Android.
FUTURE GROWTH
The economic turmoil caused by the global pandemic is likely to depress demand for App Economy workers in the short-run in Brazil and elsewhere. But as that turmoil dies down, the economic and social changes triggered by COVID-19 are likely to expand demand for health related apps. Telehealth, or the ability to deliver healthcare at a distance, will become more important in the aftermath of the pandemic. Similarly, long distance learning will become more accepted, as will ecommerce delivery.
In a 2019 report, Brasscom, the Brazilian ICT industry association, projected the need for 70,000 new ICT professionals per year going forward. According to Brasscom, the demand is spread across such areas as mobile apps, the cloud, information security, Internet of Things, and big data.
But mobile apps are a key enabling technology, because it is only natural to use tablets or phones as the human interface for almost any technology. A farmer who accesses a program for boosting crop yields, for example, will almost invariably use an app.
And then there are gig economy apps such as Rappi, iFood, and Uber. Our figure for App Economy jobs does not include gig economy workers. However, according to the Instituto Locomotiva, approximately 17 million Brazilians regularly use an app to generate income.5 These gig economy jobs are suffering during the pandemic, but they will be a potent source of growth in the future.
POLICY DEVELOPMENTS
In August 2018, Brazil passed Lei Geral de Proteção de Dados (LGPD), a comprehensive data protection law. Similar to the European Union’s General Data Protection Regulation, LGPD regulates the use of personal and sensitive personal data and defines an individual’s data rights such as the right to access and delete data.6 Additionally, the law requires businesses and organizations handling data to hire a data protection officer, provides ten legal bases for processing data, allows fines of two percent of a company’s Brazil revenues up to 50 million reals, and applies to multina-tional companies doing business in Brazil.
As economies become increasingly connected through globalization and digital technology, multinational companies will naturally gravitate toward investing in countries with better business conditions. Additionally, costly and burdensome requirements like LGPD make it difficult for startups to innovate and provide new products and services.
CONCLUSION
The coronavirus pandemic will undoubtedly transform global health and the economy. Ways of doing business while limiting contact like telehealth, distance learning, and ecommerce will likely see increased demand. As a result, apps and data – which allow consumers to purchase goods and services without coming into contact with others – will play a critical role in the recovery. Brazil’s App Economy is already sizable, totaling 277,000 App Economy jobs by our estimates as of January 2020. That includes the digital sector but also physical industries such as banking, ecommerce, media, and education.
This number is not directly comparable to our February 2017 estimate of 312,000 Brazilian App Economy jobs because of a subsequent change in methodology. A description of our current methodology can be found in our October 2017 report, “The App Economy in Europe: Leading Countries and Cities, 2017.”
The failure of the app intended to collect results from the Democratic caucuses in Iowa wasn’t the best advertisement for the App Economy. But we have to remember that apps play a central role in the economy.
As part of a global project measuring the size of the App Economy, we estimated the U.S. App Economy to have 2.246 million App Economy jobs as of April 2019. That’s an increase of 30 percent from our December 2016 estimate of 1.729 million jobs.
Many of them are at large corporations in tech hubs like the Bay Area, New York City, or Austin. But App Economy jobs aren’t exclusive to the tech sector or major cities. In fact, a growing number have seeped into smaller metro to rural areas, the physical industries, as well as startups.
For instance, as of February 2020, small IT firm Four Nodes was hiring a mobile application developer with experience in Android in Camden, Delaware. Kent Displays, which makes e-writing displays, was looking for a mobile app developer in Kent, Ohio. Federal Home Loan Bank of Des Moines was searching for a lead IT service desk analyst with knowledge of Android and iOS in Des Moines, Iowa. Television broadcasting company CBS was seeking a frontend engineer with experience in iOS and or Android development in Louisville, Kentucky.
In terms of App developing companies, Little Rock-based Apptegy is an education technology startup that allows administrators to tailor how they market their school. Leawood, Kansas-based Farmobile allows farmers to collect and share data with agronomists and other farmers. And Fargo, North Dakota-based WalkWise uses a walker attachment to track fitness data and send alerts using its mobile app.
Indeed, the ability to code from anywhere coupled with apps’ integration with the physical world (which accounts for roughly 80 percent of the economy) has democratized opportunity in these areas for businesses and consumers alike. And the Internet of Things, which will enable individuals and companies to use mobile apps to interact with physical objects and processes such as their home, cars, equipment, and warehouses, only promises to increase the interaction between apps and the physical world.
Here are some examples of App Economy jobs in the physical industries: as of February 2020, agricultural merchandiser Tractor Supply Company was hiring a mobile apps IT architect in Brentwood, Tennessee. Medical device company Medtronic was looking for a senior software quality engineer with experience in iOS and Android in Chanhassen, Minnesota. Manufacturing company IDEX was searching for a QA test engineer with knowledge of iOS or Android in Huntsville, Alabama. As of January 2020, ecommerce company SupplyHouse.com was seeking a senior Android developer in Melville, New York.
From this perspective, apps play a critical role in spreading the information revolution beyond the traditional metro hubs and tech sector. They serve as an important means to unlocking growth for smaller metro and rural areas, the physical industries, and startups.
Even before impeachment gained momentum, Americans overwhelmingly agreed that our country is “on the wrong track” and disapproved of the performance of the president and Congress. That’s largely because, even on issues where there is broad public agreement, the legislative and executive branches have been unable to find sensible solutions.
Exhibit A is an issue that should be about technology, not ideology: broadband policy. Over two decades, most Americans have come to agree about the basic principle of “net neutrality.” That’s the common-sense idea that all internet traffic must be treated equally, and no company should be able to block or throttle online traffic in order to gain a competitive leg-up.
But still, some progressives insist on all-or-nothing over-regulation of the internet, while some conservatives contend that the best thing the federal government can do is nothing at all. Recent events make it even more urgent for the grownups to break the gridlock.