IT Vendors Inflate Job Creation Claims

IT Vendors Inflate Job Creation Claims

Microsoft, Apple, and others have commissioned studies showing they're spawning thousands of jobs. But they don't tell the whole story.

 

IT vendors and policy makers are taking credit for creating many millions of new U.S. jobs, even as the national unemployment rate hangs at a disconsolate 8.3%. Are other parts of the economy really losing jobs as fast as the tech industry is spawning them, or are these job-creation claims at best overstated and at worst a bunch of bunk?

The most recent claim comes from research firm IDC, in a report commissioned and touted by Microsoft which maintains that the cloud computing movement will generate 13.8 million tech and related jobs worldwide by 2015, nearly 1.2 million of them in the U.S. and Canada.

In driving home its claims, it's logical for Microsoft to point to cloud providers such as Vorsite, a Seattle-based partner that plans to double its workforce this year. But Microsoft and IDC also argue that the economies of scale of public and private clouds, by lowering customers' IT and process costs, will free up funds for new business investment and innovation that ultimately will add jobs. Left out of their analysis is the fact that those efficiencies are achieved mostly through infrastructure consolidation, which eliminates IT jobs even if it spawns jobs elsewhere. No doubt those jobs elsewhere are more productive jobs, but putting a number on the net gains in this case is more guesswork than science.

Microsoft isn't the only one playing fast with the jobs numbers. Apple, under fire for labor practices in some of its offshore suppliers' factories, last week released the results of a study it commissioned claiming it's responsible for creating or supporting 514,000 U.S. jobs--257,000 of them at partner and supplier companies such as glass manufacturers and shipping companies; 210,000 of them at third-party app development firms; and the remaining 47,000 under its direct employ. The assumption, of course, is that those jobs wouldn't exist were it not for Apple, but taking just one example, we can't assume that all Corning employees producing glass for the iPhone would be out of work otherwise.

Thankfully, the firm that conducted the study for Apple, the Analysis Group, didn't include in its job-creation estimates wealth managers, car salesmen, tailors, pizza delivery guys, and others who may (or may not) owe their livelihoods in some way to the financial largesse of Apple and its employees. In estimating its indirect job-creation numbers, the Analysis Group did apply an "employment multiplier," developed by the federal Bureau of Economic Analysis, to the amount Apple spends on goods and services. But such multipliers are notoriously imprecise. As a New York Times article noted on Sunday, Congressional Budget Office estimates of how many jobs the 2009 federal stimulus created fluctuate wildly, between 1.6 million and 8.4 million.

A separate study commissioned by TechNet, a lobby group representing tech industry CEOs and other top executives, found that the so-called App Economy--third-party development of lightweight apps for not only Apple platforms, but also for Amazon, Google, RIM, Microsoft, Zynga, Facebook, and a range of others--has created a total of 466,000 direct and indirect U.S. jobs since the iPhone and its app store construct were introduced in 2007.

That study, released in February and written by Michael Mandel of South Mountain Economics, uses a multiplier to estimate the App Economy employment "spillover" to the rest of the U.S. economy. Mandel noted that multipliers of between 2.4 and 3.4 have been used to estimate the job impact of broadband, and those have been carried to other studies "no matter how outrageous they are." So he settled instead on a "conservative" multiplier of 1.5: Every App Economy job generates another 0.5 jobs in the rest of the U.S. economy. That rough estimate sounds reasonable enough.

But no IT sector attracts as many job-creation shell gamers as mobile does. AT&T, in its desperate attempt to win approval for its (now dead) $39 billion deal to acquire T-Mobile, had the gumption to argue that the merger would create thousands of new American jobs. AT&T attached some of those jobs to the "billions" it said it would spend to expand its mobile broadband network following the T-Mobile acquisition. And in an offering to the U.S. regulatory and Big Labor gods, it promised to bring back to this country 5,000 wireless call center jobs it had outsourced to other countries. But the fact of the matter is, mergers on that scalealways result in a net job reduction as the alpha company eliminates redundant positions.

Remember the metropolitan Wi-Fi movement? Government muckety mucks and mobile industry execs talked up public-private Wi-Fi network partnerships for Philadelphia, San Francisco, suburban New York, and smaller metro areas as a way to create thousands of jobs while closing the "digital divide"--even if the technical and economic underpinnings of such large deployments were tenuous. Metro Wi-Fi service providers went bankrupt, equipment vendors sought higher ground--and the government opportunists moved on to the next big thing.

More broadly, as part of the FCC's national broadband plan, the agency aims to free up 500 MHz of unused or underused spectrum now controlled by broadcasters and auction it off for broadband wireless communications. It's a worthy goal. But rather than sell the plan based on what it will produce--show how boosting broadband wireless connectivity will drive up productivity, output, and commerce nationwide--FCC Chairman Julius Genachowski has treated the proposed auctions like a government jobs program. "My message today is simple: We need to get it done now and we need to get it done right," he told an audience at the Consumer Electronics Show in January. "Few areas hold more promise for creating jobs than mobile."

Another sector with glowing promises of big job creation is big data. Anecdotally, CIOs we talk with are looking for business intelligence and analytics experts. And according to a report last May from McKinsey & Co., U.S. organizations could face a shortage by 2018 of 140,000 to 190,000 people with "deep analytical skills," as well as 1.5 million managers and analysts "with the know-how to use the analysis of big data to make effective decisions." Unclear is whether the big data movement will create lots of new jobs or mostly require lots of new training and skills for existing positions.

We're presented with the prospect of so many new jobs, yet as of January, 12.8 million people in the U.S. couldn't find one and 1.1 million more had given up trying. A mismatch of skills explains some of that unemployment, but the brutal reality is that advances in IT and other fields permanently destroy some jobs and send others offshore.

No question, such "creative destruction" is absolutely essential, as innovative business models, technologies, and processes replace legacy ones. And no doubt technology remains one of the biggest job creators in this country, even if some of those jobs are moving to other countries. But let's not sugarcoat or oversimplify what it takes to get from here to there.