Economics

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The True Damages of Online Piracy? It’s Hard to Measure

It doesn’t take a rocket scientist to realize that online piracy is detrimental to content creators, including in the film and music industries. However, academics studying the effects appear to be behind the curve. A few studies, brandished by illegal content providers to perpetuate the myth that content theft is a ‘victimless crime,’ claim to show that illegal downloads actually contribute to industry profits.

In theory, pirates are additional viewers who could purchase merchandise or generate word-of-mouth advertising that could get others to legally view the content. If the good outweighs the bad, then piracy might actually be helping the content industry. Leaving aside the issue of morality of theft, given the scale of online piracy, it’s hard to imagine the good truly outweighing the bad. Yet there are data-driven studies by real academics insisting that digital piracy is a boon for content creators.

However, a new meta-analysis of literature examining the effects of online-piracy, Friends or Foe? A Meta-Analysis of the Link Between “Online Piracy” and Sales of Cultural Goods by Wojciech Hardy, Michal Krawczyk, and Joanna Tyrowicz, shows that these papers finding that digital piracy does not have

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Don’t Blame ICT for Manufacturing Offshoring

During the 2000s, globalization took millions of jobs from the United States. Some have been quick to associate this job loss with the technology that ostensibly made it possible, chiefly the adoption of ICT that allowed for global connectivity. So, would the United States have been better off if it had simply never invested in ICT in the first place?

There are those who would love to somehow put the technology introduced by the ICT revolution back in the box. But a new study shows that doing so would have detrimental impact on the economy. Yes, in some cases ICT investment introduced the tools which allowed companies to outsource jobs. But, as new paper, Does ICT Investment Spur or Hamper Offshoring?, finds, the same ICT investment enabled productivity gains that kept companies at home.

Of course, it is difficult empirically to determine whether ICT investments increase the likeliness of offshoring, as causality is difficult to determine. To address this problem, authors Luigi Benfratello, Tiziano Razzolini, and Alessandro Sembenelli examined small and medium-sized Italian manufacturing firms with varying access to local broadband facilities, a random variable that was used

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Robots Don’t Eat Sugar: Productivity Growth and Sugar Consumption Now No Longer Growing Together

In recent years what was once seen as crackpot economics has now become close to conventional wisdom: the notion that productivity costs jobs. Economists call this the lump of labor fallacy. As ITIF has written here, here, and here, it’s clear that the jobs problem of today has nothing to do with productivity and that we should not worry about productivity reducing the number of jobs.

But that has not stopped many talking heads and experts from opining that yes indeed, productivity kills jobs. One graph that has gotten and continues to get widespread attention is from Andrew McAfee and Erik Brynjolfsson’s book, The Second Machine Age, that shows that “productivity and employment have become decoupled.” [i]

But as any first-year statistics course will teach you, correlation does not prove causation. In fact, it is easy to get spurious correlations. Here’s one: The divorce rate in Maine is almost perfectly correlated with the per capita consumption of margarine.

In Brynjolfsson’s case, the relationship being examined merely shows two variables that happen to be increasing from 1970 to 2000, but there is no feasible underlying argument about how

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New Report on R&D Tax Incentives Shows Best Practices

Earlier this year the European Commission released a substantial report on R&D tax credits throughout the EU and several other OECD countries including the United States and Japan. R&D tax credits have been widely adopted across the developed world since the United States introduced the Research and Experimentation tax credit in 1981: only two countries in the EU do not have tax policies intended to encourage R&D.

The report is a thorough meta-study looking at the existing economics literature and available data on R&D-focused tax policy, including the impact of R&D tax policies on R&D expenditure, innovation, employment, productivity, and other factors. It also covers the literature on how corporate tax policy can affect the location of R&D and patents. Finally, the report examines the details of various tax policies and benchmarking them based on what they determine to be best practices.

The report makes a number of facts clear. First, despite a broad range of findings, “the vast majority” of studies surveyed show that R&D tax incentives are effective, with the most recent (and rigorous) studies finding that a 10% in the user cost of R&D results in a

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Study of Patents Shows Importance of Fed-Funded Research

A new report from Battelle based on methodology from the Academy of Radiology Research shows how federal R&D funding succeeds in producing patents. The report examines essentially all federal R&D, including not only the Department of Defense and the National Institutes of Health but also the Department of Energy, the National Science Foundation, NASA, and other agencies. It finds that, per patent, public-sector agencies provide a return comparable to private-sector ones—or even cheaper. Recent public sector budget cuts, therefore, can be expected to significantly hurt our scientific progress.

The agencies vary significantly in terms of how productive they are and how successful their patents are. Some agencies in particular, such as the National Institute of Biomedical Imaging and Bioengineering (NIBIB) have exceptional records for producing research that is widely useful: NIBIB is estimated to spur an additional $578.2 million, or 25 patents, for every $100 million in R&D expenditures. The DoD and NASA, on the other hand, are less efficient at producing patents at only around 2-3 patents per $100 million in R&D expenditures. (although, as the report notes, defense spending is more likely to be classified and thus not

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R&D Credits Essential for Competitiveness: New Evidence

A new SSRN paper finds that research and development (R&D) helps manufacturers keep ahead of competition from imports. U.S. manufacturing firms in industries with strong import competition from China fared better 50 percent better when they had larger stocks of capital used for R&D. While this finding is intuitive, it provides an important piece of evidence that reiterates a critical point about the U.S. economy: international competitiveness is extremely important and smart R&D policy (including tax credits) is a key method of maintaining it.

The authors Johan Hombert and Adrien Matray use granular industry-level data on imports from China and show that these imports have a significant impact on the performance of U.S. manufacturing firms. They then examine whether this impact changes depending on how much R&D capital firms have. In order to make sure the R&D capital isn’t related to other factors, they use state-level changes in R&D credit policy during the 1980s.

Their results here show that firms that had access to cheaper R&D and were thus more likely to acquire more R&D capital had an easier time “climbing the quality ladder” and staying competitive in the face

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Our Automatic Assumptions about Automation

Senator and likely presidential hopeful Marco Rubio (R-FL) appeared on last Tuesday’s The Daily Show with Jon Stewart, promoting his new book and weathering an endless stream of jokes about his home state of Florida. While the discussion covered a range of policy ground, we wanted to highlight one comment by Senator Rubio that showed an all too common misunderstanding of innovation and automation.

Rubio said, “The concern I have about the minimum wage increase is that we have been told by the CBO and independent analysts that it will cost certain jobs. And that happens when some businesses will decide that well, you’ve now made our employees more expensive than machines so we’re going to automate. So in 5-10 years it’s going to happen anyway but this will accelerate this process, when you go to a fast food restaurant it will not be a person taking your order, there will be a touchscreen there that you will order from and when you get your order it will be right. [uneasy laughter] But the point is, if you make that person now more expensive than that new technology, they’re going

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Photograph by Chetan Karkhanis

Developing Countries Need Robots Too

Ask any economist why some countries are poor and some countries are rich, and they will probably answer, “productivity”. Essentially, this means that people in rich countries are rich because they are able to create more wealth with less effort. But how do they do this? One of the primary ways is through better technology.

Unfortunately, instead of being recognized for its contribution to wealth, better technology is all too often demonized as a threat to employment, particularly in low-income countries without social safety nets. Intuitively, people care more about the jobs and income streams that already exist than the potential future savings from automating their jobs–a bird in hand, as they say. But a new paper by Mehmet Ugur and Arup Mitra of the University of Greenwich shows that even in very poor countries, technology is far less threatening than it may appear.

We have argued here before that robots are not taking our jobs: in the long run on a macro level productivity increases have no relationship with either the total number of people employed or with the level of unemployment. This is because when automation or

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Immigrant STEM Workers Increase Everyone’s Wages

We’ve posted recently about how our current immigration policy is hurting Silicon Valley. But when the United States lets in more immigrants, what happens? Often it’s not what you would expect.

A new NBER paper by economists at the University of California Davis and Colgate University studies the effect of skilled H1-B immigrants in STEM occupations on more than 200 cities across the country. In cities with more STEM immigrants, wages for college-educated workers went up 7-8 percentage points, wages for non-college-educated workers went up about half as much, and there was no significant effect on employment.

Why this counterintuitive result? Economics 101 says that when the supply of something grows, the price should decrease, not increase. As is too often true, however, Economics 101 in this case tells us very little about the real world. Figuring out cause and effect in many types of markets, particularly labor markets, is tough because economies are not as simple as the textbook models might have you believe.

What actually happens is that when immigrants enter an economy, they do more than just offer their labor at a (potentially) lower price. They increase

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New Government Report Confirms Benefits of Digital Trade

The digital economy has been a major boon to U.S. domestic and international trade, as is documented by a new report by the United States International Trade Commission entitled Digital Trade in the U.S. and Global Economies (summary here). And even though the report shows important benefits from digital trade, those benefits are likely understated. This is because the report limited its analysis to “digitally intensive” sectors, which means that its numbers exclude contributions from firms that only use digital trade as a smaller part of their business.

Still, digital trade has made quite an impact: the report estimates that digital trade has raised real U.S. GDP by $517.1-$710.7 billion (3.4−4.8 percent) by increasing productivity and lowering the costs of trade. By raising GDP, digital trade increased average wages, and the increased wages likely contributed to increased employment by as much as 2.4 million jobs.

Within digitally intensive industries (and likely within many non-digitally intensive industries, although the report focused on the former), the internet has come to play a major role in everyday commerce. Firms in these industries sell nearly a trillion dollars’ worth of goods and services

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