Tech/Telecom/Ecommerce sector grew by 7.3% in 2018: Political Implications

Many of the Democratic presidential candidates are vying to see who can be toughest on the tech sector.

by Michael Mandel, Chief Economic Strategist| Progressive Policy Institute

Many of the Democratic presidential candidates are vying to see who can be toughest on the tech sector. But here’s the paradox: New data shows that the tech boom is a major force driving down unemployment, lifting economic growth, and helping voters — precisely the people that the Democratic candidates are trying to reach.

The key here is that the economic data produced by the government is not typically presented in a form that easily shows the benefits of the tech boom. Software firms, for example, are spread across at least three different industries. Ecommerce — related activities are spread across at least two industries, electronic shopping and warehousing. And telecom includes at least two three industries, telecom services, communications equipment, and data processing and hosting.

In a 2018 research paper, PPI developed a methodology for analyzing the economic performance of what we call the “tech/telecom/ecommerce” sector. It builds on research done by the Bureau of Economic Analysis, but goes further.

When we applied this methodology to the recently released industry GDP data for 2018, here’s what we found.

The tech/telecom/ecommerce sector grew by 7.3% in 2018, triple the 2.4% growth of the rest of the private sector.

Prices in the tech/telecom/ecommerce sector fell by 0.8% in 2018, compared to a 3% price increase in the rest of the private sector.

Job growth in the tech/telecom/ecommerce sector exceeded job growth in the rest of the private sector. Tech/telecom/ecommerce FTE employment grew by 4% in 2018, compared to 2.1% growth in the rest of the private sector.

Our preliminary calculations suggest that labor share rose in the tech/telecom/ecommerce sector in 2018, while falling in the broader private sector.

It’s worth describing how we arrived at this result. We compared the percentage change in value-added with the percentage change in wages and salaries in the first three quarters of 2018, as reported by the BLS QCEW data. We found that value-added rose by 5.6% in the broader private sector, compared with a 5.4% increase in wages and salaries. To the extent that these trends continue in the fourth quarter and are reflected in compensation, labor share fell slight in the broader private sector.

By contrast, the available data points in favor of a rising labor share in the tech/telecom/ecommerce sector. For the purposes of this calculation we separated out tech/telecom from ecommerce, since the eventual ecommerce results will be greatly driven by the fourth quarter. For tech/telecom–computer and electronics manufacturing, software, telecom, communications, and Internet–value-added rose by 6.7% in 2018, compared to a 7.7% rise in wages and salaries. To the extent that these trends continue in the fourth quarter and are reflected in compensation, labor share rose in the tech/telecom sector in 2018.

We could not do a full analysis of labor share in ecommerce without the fourth quarter QCEW data, which is not available until June. However, we can look at warehousing, which is where ecommerce fulfillment centers are generally classified. We find that value-added in warehousing overall rose by 10.1% in 2018, while wages and salaries rose by 14.2% through the first three quarters. Assuming that these trends continue, there was a significant rise in labor share in the warehousing industry in 2018.

To emphasize: These are preliminary results, which may be revised substantially as new data comes in. Our next step is to break down these results geographically, which will be possible when the full 2018 data comes out in June. But even before we see those numbers, it appears clear that both consumers and workers are benefiting from the expansion of the tech/telecom/ecommerce sector. Consumers are getting falling prices, and workers are getting faster job growth and a bigger share of the economic pie.

What’s more, as we have written in earlier reports, there are signs that digitization is starting to create new businesses and jobs in physical industries like manufacturing, allowing consumers and workers in those sectors to start sharing the fruits of faster growth.

This suggests that there is room for a presidential candidate to talk about the benefits of innovation and growth, and the need for more innovation rather than less.