High-tech sectors not big job creators in Europe and US
Despite the obsession of politicians and journalists with high-tech sectors, they are not big job creators in economies. A multiplier is evident where there is a concentration and while Uber, the taxi service termed a high-tech "unicorn," had a valuation of $50bn last year, it's a successful services company utilising smartphone technology and bought-in IT systems.
The Inscope research institute at Erasmus University, Rotterdam, The Netherlands, noted last December in its findings of the annual Erasmus Competition and Innovation Monitor:
We are measuring different factors, not just technological innovation. Here’s the fact that most CTO’s (chief technology officer) don’t know. Only 25% of Innovation success depends on the investments in ICT and related technologies. But 75% comes from other factors such as management innovation, leadership style, methods of organizing, investment in human capital and co-creation with partners.
High-tech firms accounted for 4.1% of US private firms in 2011 and most global tech startup exits have no venture capital. Meanwhile, in the UK less than 4% of startups have 10 or more employees 10 years after their creation.
Eurostat reported last month that:
In 2014, about 34m people were employed in the manufacturing sector across the EU-28, representing 15.4 % of total employment. Among these workers, 2.3m were employed in high-tech manufacturing, corresponding to 1.1 % of total employment. In the same year, there were more than twice as many jobs in the high-tech knowledge-intensive services than in high-tech manufacturing, and they accounted for 2.8 % of total employment.
High-tech manufacturing including pharmaceuticals, was led by Ireland at 3% of total employment; 1.7% in Germany and 1% in the UK. Ireland also led the knowledge-intensive services at 4.3% but about half of the 82,000 employed, are in mainly American-owned companies and work in administration functions. Germany was at 2.5% and the UK was at 3.7%.
It was estimated last year that in 2014 6.5m worked in the US tech sectors, which accounted for 4.4% of total employment.
A UK study of creative industry workforces in 6 European countries reported that Sweden has the highest proportion of its workforce (8.9%) employed in the creative industries, followed by Finland (8.2%) and then the UK. Sweden also has the highest proportion of its workforce employed in the creative economy (12%) compared to 9.5% in the UK. A Google supported study in Europe also had a wider net than Eurostat for high-tech.
In the US, the Congressional Research Service in a report on STEM (science, technology, engineering, and mathematics) graduates found:
Almost two-thirds of the 9.3m people in the US labor market who had STEM degrees in 2010 were employed in non-STEM occupations.
Finfacts reported in 2013:
Big US companies are no longer big employers. For example, General Motors had over 618,000 employed in the US in 1979 — in well-paid jobs; today, General Electric employs 133,000 and Apple 47,000. The US needs to add about 90,000 new jobs monthly to just meet the natural growth of the workforce. General Motors' worldwide employment in 1979 was 853,000. Today it is about 202,000 with 80,000 employed in the US.
In 2015 Apple employed 110,000 full-time equivalents globally and 66,000 in the US: 54,000 in customer support and in Apple's retail stores, and 12,000 US-based developers — the non-tech staff are not really pampered despite working for one of the world's most valuable companies.
Intel had 106,700 employees worldwide at end 2014, with close to half of those employees located in the US while IBM had 378,000 global employees. It stopped disclosing its US headcount in 2007 and gave an estimate of 105,000 to Congress in 2009.
In a paper, Industrial Renewal in the 21st Century: Evidence from US Cities by Thor Berger and Carl Benedikt Frey, of Lund University, Sweden, and Oxford University, England, the economists say opportunities created in new industries that appeared for the first time between 2000 and 2010 — associated with the arrival of new technologies — that while they tend to employ more skilled workers than existing ones and primarily locate in cities with an above-average supply of college-educated workers:
Yet, the magnitude of workers shifting into new industries is strikingly small: in 2010, only 0.5% of the US labour force is employed in industries that did not exist in 2000. Crucially, it is found that many new industries of the 2000s stem from the digital revolution, including online auctions, internet news publishers, social networking services and the video and audio streaming industry. Relative to major corporations of the early computer revolution, the companies leading the digital revolution have created few employment opportunities: while IBM and Dell still employed 431,212 and 108,800 workers respectively, Facebook’s headcount reached only 7185 in 2013. Because digital businesses require only limited capital investment, employment opportunities created by technological change may continue to stagnate as the US economy is becoming increasingly digitized. How firms and individuals are responding to digital technologies becoming available is a line of enquiry that deserves further attention.
Facebook's full-time global employment at end 2015 was 12,691.
In 2014 Samsung of South Korea had more employees than Apple, Google and Microsoft combined.
In its 2015 diversity report, Google reported that 82% of its tech staff are men; 59% are White; 35% Asian; 1% Black and the rate for Hispanics is 2%.
Enrico Moretti, an economics professor at the University of California, Berkeley, has said that the average tech position creates five additional jobs in various support industries, from doctors to hairdressers to dog walkers. However, the "multiplier effect" for manufacturing jobs is much lower: 1.6 instead of 5. Much of the tech multiplier he added, was simply the result of the higher wages generally paid by tech jobs.
Economists at the Tjalling C. Koopmans Institute at the Utrecht School of Economics, The Netherlands, said in a 2015 paper that the existence of a local high-tech job multiplier but the share of high-tech in total employment must increase towards 17% in each region in the long-run.
Big tech companies have lots of cash and buy innovation through acquiring young firms. In early 2014 Facebook acquired WhatsApp, the mobile messaging firm for $19bn. WhatsApp was just five years old and had 55 employees. Google has acquired more than 150 companies since it went public in 2004.
The broader US economy has been dependent on a small number of high-growth firms to create jobs and boost innovation but since 2000 there has been a decline in these firms including high-tech ones according to a paper by Ryan Decker, an economist at the Federal Reserve, Ron Jarmin and Javier Miranda, economists at the Census Bureau, and John Haltiwanger, an economist at the University of Maryland:
High-growth firms and especially high-growth young firms played critical roles in the robust US job and productivity growth of the 1980s and 1990s. During this era, the pace of business startups was very high. Most of these startups would fail within their first five years, but a small fraction of young firms grew very fast. Such high-growth young firms yielded a sustained and disproportionate contribution of startups to job creation. Moreover, the evidence shows that these high-growth young firms were relatively more innovative and productive, so their rapid growth contributed positively to productivity growth as more resources were shifted to these growing firms.
The economists added in an article published last week:
The post-2000 decline in high-growth young businesses in key innovative sectors like high-tech suggests there has been a decline in transformational entrepreneurs in this sector. Why this decline has occurred is an open question. In the post-2000 period, high-tech includes fewer young firms, and the young firms that are present are less likely to have high growth. This period of decline in high-growth entrepreneurship in high-tech coincides with the decline in aggregate productivity growth in the high-tech sectors of the economy as documented by Fernald (2014). Given the important role high-growth young businesses have played historically in the US, especially in sectors like high-tech, understanding the causes and consequences of this decline should be a high priority for future research.
According to the OECD Science, Technology and Industry Scoreboard 2015:
Between 2001 and 2011, entrants and young firms remained the main contributors to net job creation. During the pre-crisis period, adjustments in the exit margin for all firms across the age and size spectrum accounted for the majority of net job destruction. However, the picture changed dramatically during the crisis period. Both large and small incumbents shed jobs while remaining in business, resulting in a sizeable increase in net job destruction. The sharp decline in the job contribution of incumbents during the 2008-09 crisis, combined with their negative contribution to net job creation, was characteristic of all sectors – manufacturing, construction and services alike. However, the negative peak was especially sharp in the manufacturing sector. Conversely, incumbent firms in the services sector drove improvements in net job creation during 2009-10 and 2010-11.
US Kauffman Foundation: The Importance of Young Firms for Growth (2015)
Israel is the only country to successfully clone the Silicon Valley model and in 2013 9% of employment was in high-tech down from about 11% in 2006-2008.
Civilian research and development (R&D) spending is over 4% of GDP — nearly twice the OECD average — and the country has about 250 foreign-owned R&D centres.
Tier 1 (high-skill, high-wage jobs) were at just over 300,000 in 2001 and 2015, or 25% of 2015 jobs in Silicon Valley.
Prof Dan Breznitz, an Israeli native who is the co-director of the Innovation Policy Lab at the Munk School of Global Affairs in the University of Toronto, spent time in Ireland when a graduate student and later advised Enterprise Ireland. He said in 2007 that Irish research was too narrowly focussed on biotech and the ICT, or information and communications technology industries.
He told the Irish Times in 2014:
Ireland has done a really rotten job of figuring out jobs for people who don’t have Master’s degrees.
He also said Ireland has done very poorly in creating innovative and successful indigenous companies, especially in the technology sector, as opposed to being very successful at attracting in multinationals.
Attracting foreign direct investment is also positive and has supplied many Irish jobs, he said. But Ireland’s indigenous sector is alarmingly weak.
Also in 2014, Prof Breznitz wrote in The Economist:
Great innovations and entrepreneurship always mean growth and job creation. However, in our global economy, growth and job creation do not necessarily occur at the place of innovation. The latest American biotech boom may spell an amazing future filled with good jobs for the middle classes of Denmark, Ireland, and Switzerland. But America’s policy failures could mean that its people will not share in that future—a future fully paid for by their tax dollars. So let us dispel the vision of glory in The Economist’s report, and figure out what is really going own: what changed in the way in which innovation translates to growth and distribution? To do so we have to understand how goods and services are now being globally produced; what is innovation; how different kinds of innovation lead to growth and jobs; and whether what The Economist’s report presents as the latest stage of development — the growth of platforms that allow rapid creation of new venture on top of them — is indeed new.