08 February 2012

Jobs in the App Economy

Michael Mandel has done a rough estimate of the jobs created  in the "app economy" since 2007 and published his results in a paper for TechNet (here in PDF). He concludes:
How can the U.S. dig itself out of the current job drought? Government policy can temporarily boost employment. The ultimate answer, though, is innovation:  The creation of new goods and services that spur the growth of new industries capable of employing tens or hundreds of thousands of workers.1

Nothing illustrates the job-creating power of innovation better than the App Economy. The incredibly rapid rise of smartphones, tablets, and social media, and the applications—“apps”—that run on them, is perhaps the biggest economic and technological phenomenon today. Almost a million apps have been created for the iPhone, iPad and Android alone, greatly augmenting the usefulness of mobile devices. Want to play games, track your workouts, write music? There are a plethora of apps to choose from, many of them free.

On an economic level, each app represents jobs— for programmers, for user interface designers, for marketers, for managers, for support staff. But how many? . . .

The App Economy now is responsible for roughly 466,000 jobs in the United States, up from zero in 2007 when the iPhone was introduced. This total includes jobs at ‘pure’ app firms such as Zynga, a San Francisco-based maker of Facebook game apps that went public in December 2011. App Economy employment also includes app-related jobs at large companies such as Electronic Arts, Amazon, and AT&T, as well as app ‘infrastructure’ jobs at core firms such as Google, Apple, and Facebook. In additional, the App Economy total includes employment spillovers to the rest of the economy.
The methodology is rough -- one could easily justify a number half as big or twice as large. In either case, the job numbers are big. The numbers are rough estimates because government economic data is not yet caught up with this fast-changing aspect of the national economy.

The analysis thus raises a larger question: How do we think intelligently about innovation and its consequences when the relevant data doesn't even measure what is going on in the current economy. Are we trying to drive by looking in the rear-view mirror?

10 comments:

  1. Not that I don't think the pool has expanded, but let's not pretend that all of these app developers weren't (and still aren't) already developing other software before the word "app" became popular.

    I think that the expansion of mobile devices and the industries that support them are excellent examples of innovation. But like most other forms of innovation, they're not occurring in a vacuum.

    You also have telecoms expanding and upgrading their networks to support the explosion of data traffic due to these devices.

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  2. Often times policy changes can be minute, yet have unintended (and positive!) repercussions. In 1978, Jimmy Carter signed H.R. 1337. Included in it was Senator Alan Cranston's tiny amendment to that provided a tax exemption for the homebrewer. Once enacted, craft brewing took off in the US. I don't know if there has been any studies on the effect of this on the economy, or if there is truly a causal relationship, but the Brewers Association puts the 2010 value of craft brewing at $7.6 Billion dollars, a 11% increase by volume (and 12% by $) over 2009. This growth occurred in a backdrop of the large brewing companies seeing a decline in production and sales.

    Eliminating obstacles to innovation by encouraging invention in small and nimble companies is the way to go. Cottage industries. The US's local food economy has the potential to explode in certain areas if regulations for the small producer are lifted, to allow them more flexibility to compete against the giants.

    The App Economy - and the DIY, arduino, craft economies - also have the potential to contribute greatly to the economy.

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  3. There are a plethora of apps to choose from, many of them free.

    Free apps don't stimulate 'paid employment'.

    The 'proliferation' of inexpensive apps is a result of hardware and software development tool innovation. They are cheap to write and cheap to distribute.

    Yesterday's web designer is today's app designer. Applications that took a team of 10 years to develop are now developed by a team of one in months.

    I live 8 miles from Microsoft and 14 miles from Amazon. Five years ago a 'key man' office cost more then $1,000/month if you were lucky enough to find one. I'm paying $250/month(including utilities) now for an office large enough for 4 people.

    Innovation is a zero sum game that historically has lead to an increase in standard of living. It freed the workforce and capital from repetitive tasks to concentrate on tasks that improved 'quality of life'.

    All of my neighbors are employed in 'innovation'.

    The only one that is 'upbeat' is in the 'assisted living' business. He can't expand fast enough to meet 'demand'.

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  4. It's truly remarkable how much can happen and how fast those things can happen when developments are not encumbered by bureaucratic processes. The App developers did not materialize out of thin air either, they were programming for other platforms and OS's before that. But there was money to be made in a new field so people and companies quickly adapted. In the energy extraction field, unconventional gas and oil technology is employing tens of thousands more people than the government would have anticipated 5 years ago. There are some who even believe that unconventional energy production may reduce unemployment enough to give this president a fighting chance at a second term.
    Meanwhile, the very things the government championed did not work out as planned. I've read that as much as 70% of the renewable energy funds ended up purchasing equipment manufactured off shore. Then there's efficiency improvement through better insulation and sealing up of buildings. It took a year to write the rules, many of the local governments who got grants may not be able to spend the money in time, and the training done to support these programs trained nearly 10x as many people who could find jobs.
    So how do you think intelligently about innovation and its consequences when the government is not measuring what's going on in the current economy? Put a dollar sign in front of it and see what sort of margins you can justify in a business plan as opposed to justify funding to a bureaucrat. Successful entrepreneurs aren't looking in the rear view mirror. That's where big corporations are well established and know how to protect their turf through both commercial and regulatory methods. These are the business folks on the president's economic council. You don't need to be nimble when in a defensive posture where most of the influence peddling goes on.

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  5. This is principally a question concerning centralized vs distributed intelligence. Whether a managed or market economy has preferred characteristics. Ironically, it also relates to design and evolution. This dichotomy has been a topic of discussion by philosophers for over 2000 years.

    There is an optimal compromise, but some people hesitate to place their faith in the better nature of individuals, and would rather defer to an authority or other managing entity. This was, and is, presumably, the cause for a major schism between two human populations.

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  6. Before we go too far with the App Economy, we should recall that as the App Economy grows other parts of the high tech world are shrinking and shrinking dramatically. IT network management employment is shrinking as IT departments are outsourced and consolidated. Verbalization and eh cloud will only hasten this. Amazon may employ many people to manage their cloud system but those people are replacing many more people who were once employed running the separate networks at the companies taking advantage of the cloud.

    Computer hardware is now standardized and becoming a commodity. Companies used to employ engineers to design special purpose hardware and computers for their products. Now systems run as applications on general purpose processors which are designed into special purpose servers. Any custom design becomes a matter of interconnecting pre-programmed blocks on programmable gate arrays. Similar stories can be said about other things including compilers, databases, operating systems etc. Everything is now a commodity and standardized

    The App Economy may be arising but other high tech economies are shrinking. Many electrical engineers and computer scientists graduate to no jobs. Experienced engineers are marched to the door by security guards. It would be interesting to see the actual employment numbers in high tech as a whole to see if it is growing and if it can replace in numbers the jobs lost in other industries.

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  7. Does not the phrase “App Economy” limit the view of innovation? (Perhaps I’m being too critical since you are using the App Economy post as your departure point.) Real innovation is also underway in conventional energy where creative, hungry folks found new ways to extract natural gas and petroleum from shale formations.

    They were able to do so because of what others here have noted: minimal government interference. Fracking developed on private (i.e., non-federal) land under the watchful(?) eye of state regulators without federal oversight. North Dakota (535K barrels of oil per day) has little federal land, so there were no messy issues about getting mineral rights from a federal agency. It appears that fracking was a “rear-view” phenomenon in that a lot of folks knew little about it until natural gas prices tanked or reports of possible water contamination appeared.

    As for Apple (and Android) products and the App Economy, don’t overlook the cottage industry of screen protectors, carrying cases and cradles, and all the other stuff people get to care for their new devices. There are a lot of home and small businesses supporting themselves with these products.

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  8. I don't know who Michael Mandel is, but does not appear to know anything about apps.

    As one who works in the App economy, here are the defining characteristics of this economy:

    1) Apple royalty payments to developers is under $3 billion a year. Since an app developer can get a $100K salary easily, and Apple constitutes the predominant bulk of app royalty payments, the number of jobs created is at best under 30,000.

    2) Of the royalty payments, 20% to 25% come from the top 200 apps, and of these top 200 apps, the majority are games.

    A listing of the mistakes Mandel makes:

    1) That app developers weren't previously employed or employable
    2) That the jobs created are in any way better than the previous programming jobs available
    3) That the apps constitute a significant contribution to the US or world economy, as opposed to just Apple
    4) That most of the people working on apps in fact are receiving a living wage, as opposed to pouring money into speculative investment and/or a hobby/2nd job

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  9. Innovation in all areas of the economy often results in increased productivity per worker which, by definition, results in fewer workers needed for the same output and, thus - all else being equal - an increase in unemployment. I have not seen discussed what would be the effect on unemployment and the general economy of a federally mandated decrease in the official work week to, say, 30 hrs. Thoughts?

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  10. -8- clue - very good points. First, the author engages in magical thinking with his guesstimates. Then, he never defines what a job is. Nor does he define what an app is. The solitaire game on my laptop is an app, and I think it was written before 2007.

    Until I know how many people are working full time, with a full time wage, there's no sense discussing the matter. A help wanted ad to hire someone in a temp position for a few weeks is not what I call a 'job.' We know what we mean when we say 'jobs are created,' and it doesn't mean getting a few paychecks until the work runs out.

    The vast majority of apps are junk programs, and are worth what you pay for them to the writer. The app market has certainly created jobs, but this estimate sounds wildly optimistic to me. I suspect it could be an order of magnitude off. And that multiplier effect - however 'conservative' - seems silly as well. There's a difference between adding bankers on Wall Street and adding coders in Metropolitan Boston. The coders do not work in one neighborhood, and they will not spend their money in one place. Home Depot and Joe's Burger Joint will not have to hire new employees to take in all that app money in Boston.

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