The problem is that most industries formed since 2000—electronic auctions, Internet news publishers, social-networking sites, and video- and audio-streaming services, all of which appeared in official industry classifications for the first time in 2010—employ far fewer people than earlier computer-based industries. Whereas in 2013 IBM and Dell employed 431,212 and 108,800 workers, respectively, Facebook employed only 8,348 as of last September.
The reason these businesses spin off so few jobs is that they require so little capital to get started. According to a recent survey of 96 mobile app developers, for example, the average cost to develop an app was $6,453. Instant-messaging software firm WhatsApp started with a relatively meager $250,000; it employed just 55 workers at the time Facebook announced it was buying the company for $19 billion. All of which explains why new technologies throughout the 2000s have brought forth so few new jobs.
Pointer from Mark Thoma.
My thoughts.
1. Either IBM and Dell produced much more output than Facebook, or Facebook exhibits much higher productivity. Of course, valuing the output of IBM and Dell is difficult, and valuing the output of Facebook is impossible.
2. Without saying so, Frey is complaining about high productivity growth.
3. Frey does not point out that the official productivity statistics do not show high productivity growth. Not that I am a proponent of the official productivity statistics.
4. Frey does not point out that most economists view high productivity growth as a good thing.
5. I think that most non-economists (and maybe even some economists) do not realize that Thiel-Cowen stagnation is incompatible with Summers stagnation. The former is a story of disappointingly low productivity growth, and the latter is a story of “excess” productivity growth. I personally do not buy either stagnation story.
6. If you think that the media likes bad news, then they are bound to like either stagnation story (or both simultaneously, even though they contradict one another). The media deck is stacked against optimists. I would say that it is even stacked against realists.
1. Or both.
2. More closely, that high productivity growth is over such a small part of the economy.
3. Which is what you would expect from such an insignificant part of the economy.
4. Not so incompatible with small insignificant areas having high productivity growth with the mass of the economy having little with little increased investment. Summers is more about deficient investment than high productivity, though less investment results from those high productivity areas since they aren’t capital intensive.
Agree, almost, but I try to take every opportunity.
Except the Web 2.0 areas are not “insignificant.” They are the only avenues available on the consumer side but insificant as far as employment and revenues.
There’s another problem with those numbers.
A huge amount of the work input, either physical or human, for Facebook, Ebay, and to a large extent Amazon, is provided by counterparties who are not on the corporate payrolls, may not show on any employment list since their activities are a side gig, and are not suppliers in the normal sense of the word. But who do provide content, computing resources, various sorts of labor.
Facebook’s “product” such as it is, is virtually all produced by facebook users.
A very great deal of google’s output is indeed produced by machines, but a large part of that is machines scanning the human output of vast numbers of web sites.
Dell and IBM’s products are to a large degree produced by the employees of those companies, using inputs from suppliers that are bought in the conventional market, with the suppliers reporting employment for producing the inputs because it’s their main line of work. So basically everybody who works for Dell or Dell’s suppliers shows as employed somewhere.
A person who works full time at Intel making processors (consumed by both IBM and Dell) will show on the official employment rolls of Intel. At night, when she makes clever videos for youtube, which may or may not make her net revenue, but which arguably contributes to total economic output, she is NOT counted as having a second job. She’s very much not an employee of youtube, or any of the marketing associates who may pay her various vigs. So while her labor is in some hard to measure sense adding to economic output, it doesn’t show in market labor statistics. What’s more, such compensation as she receives will often be “side market”, “informal market”, or “normal market but too small to account for” – so she may in fact be doing “market labor” but her compensation may not really show in the market labor accounting.
What does this mean? It suggests that measuring the “actual employment” and actual total-factor-producitivty of google/facebook/youtube/ebay is very difficult.
[By the way, measuring the actual employment of Microsoft, Cisco, Oracle, or Apple is also very difficult because of the substantial pools of formal and informal consulting built up around them, the huge value added to their products by customer betas and various network effects, etc.]
We aren’t just seeing less jobs. Its something more fundamental. The value proposition of a unit of labor is becoming less and less clear and this is fundamental to how our economy works. You can now sell a DVD player for less than the cost of a decent haircut. Technology is reaching the point where the value of goods compared to labor doesn’t make any rational sense any more.
I think Thiel has said basically it is not that Web 2.0 is so great but that it is the only game in town because everything else is so bad.
It seems to me that this is symptomatic of increasing “winner-take-all” markets, as more industries reach near-zero marginal cost of distribution. The reason that “Internet news publishers” provide fewer jobs than print media is simply because we need fewer people writing the news if it now has broad, instant, inexpensive reach. And who needs the 2nd or 3rd largest social networks when we can all join the largest for free?
And while Frey complains that the lack of capital required to start these businesses is driving lower job growth and expanding inequality, he fails to mention that the lack of required capital *increases* opportunity. He calls for policies to encourage entrepreneurial risk-taking, but the lack of required capital to start these businesses has already naturally lowered the risk of starting them.