Winners and losers in the Apple economy

By Chrystia Freeland
July 1, 2011

ASPEN, COLORADO — Once upon a time, the car was the key to understanding the U.S. economy. Then it was the family home. Nowadays, it is any device created by Steven P. Jobs. Call it the Apple economy, and if you can figure out how it works, you will have a good handle on how technology and globalization are redistributing money and jobs around the world.

That was the epiphany of Greg Linden, Jason Dedrick and Kenneth L. Kraemer, a troika of scholars who have made a careful study in a pair of recent papers of how the iPod has created jobs and profits around the world. The latest paper, “Innovation and Job Creation in a Global Economy: The Case of Apple’s iPod,” was published last month in The Journal of International Commerce and Economics.

One of their findings is that in 2006 the iPod employed nearly twice as many people outside the United States as it did in the country where it was invented — 13,920 in the United States, and 27,250 abroad.

You probably aren’t surprised by that result, but if you are American, you should be a little worried. That is because Apple is the quintessential example of the Yankee magic everyone from Barack Obama to Michele Bachmann insists will pull America out of its job crisis — the remarkable ability to produce innovators and entrepreneurs. But today those thinkers and tinkerers turn out to be more effective drivers of job growth outside the United States than they are at home.

You don’t need to read the iPod study to know that a lot of those overseas workers are in China. But, given how large China currently looms in the U.S. psyche, it is worth noting that fewer than half of the foreign iPod jobs — 12,270 — are in the Middle Kingdom. An additional 4,750 are in the Philippines, which, with a population of just 102 million compared with China’s 1.3 billion, has in relative terms been a much bigger beneficiary of Mr. Jobs’s genius.

This is a point worth underscoring, because some American pundits and politicians like to blame their country’s economic woes on China’s undervalued currency and its strategy of export-led growth. In the case of the Apple economy, that is less than half the story.

Now come what might be the surprises. The first is that even though most of the iPod jobs are outside the United States, the lion’s share of the iPod salaries are in America. Those 13,920 American workers earned nearly $750 million. By contrast, the 27,250 non-American Apple employees took home less than $320 million.

That disparity is even more significant when you look at the composition of America’s iPod workforce. More than half the U.S. jobs — 7,789 — went to retail and other nonprofessional workers, like office support staff and freight and distribution workers. But those workers earned just $220 million.

The big winners from Apple’s innovation were the 6,101 engineers and other professional workers in the United States, who made more than $525 million. That’s more than double what the U.S. nonprofessionals made, and significantly more than the total earnings of all of Apple’s foreign employees.

Here in microcosm is why America is so ambivalent about globalization and the technology revolution. The populist fear that even America’s most brilliant innovations are creating more jobs abroad than they are at home is clearly true. In fact, the reality may be even grimmer than the Tea Party realizes, since more than half the American iPod jobs are relatively poorly paid and low-skilled.

But America has winners, too: the engineers and other American professionals who work for Apple, whose healthy paychecks are partly due to the bottom-line benefit the company gains from cheap foreign labor. Apple’s shareholders have done even better. In the first of their pair of iPod papers, published in 2009, Mr. Linden, Mr. Dedrick and Mr. Kraemer found that the largest share of financial value created by the iPod went to Apple. Even though the devices are made in China, the financial value added there is “very low.”

In an essay to be published in the July/August issue of Foreign Affairs magazine, the Nobel economics laureate A. Michael Spence describes the same phenomenon: “Globalization hurts some subgroups within some countries, including the advanced economies.

“The result is growing disparities in income and employment across the U.S. economy, with highly educated workers enjoying more opportunities and workers with less education facing declining employment prospects and stagnant incomes.”

These contradictions of the Apple economy help to explain the defining paradox of the Aspen Ideas Festival this week, an annual gathering of business people, politicians and writers in the Colorado Rockies.

On one hand, the assembled cognoscenti took a rather bleak view of the U.S. economy. Justin Wolfers, an economist at the Wharton School at the University of Pennsylvania, captured the collective concern, when he told me America was already halfway through a “lost decade” and warned that it was a mistake to assume that the economy would heal of its own accord.

But, in contrast with 2008, when America’s affluent were collectively terrified, the festivalgoers this summer are in high spirits. They should be. Keith Banks, president of U.S. Trust, the private wealth management arm of Bank of America, said that for his millionaire and billionaire clients, the recession was over.

Nor, Mr. Banks told me, were they overly worried by the lackluster U.S. economy or Europe’s even weaker performance. That’s because the global economy overall — powered by the emerging markets — continues to grow strongly, and Mr. Banks’s American “high net worth individuals” are not just U.S. citizens, but global capitalists.

A second theme of the festival is hand-wringing about the overly polarized American political debate. The worriers are referring to the divide between Republicans and Democrats. But the truth is that not much separates the Republicans and Democrats gathered here.

The summer issue of Aspen Magazine called these affluent festivalgoers “internationalists.” They are the winners in the Apple economy, and the reason American politics is becoming so raucous is that the gap between them and the losers is growing.

27 comments

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A millionaire and a billionaire do not care what country of citizenship they have or what passport they possess. When you are rich you can live or travel where and when you want. The rich can bank anywhere they want. They can educate their children in any municipality or kingdom. They are the INTERNATIONALISTS. For them, money is no problem, and capital has no border.

Unfortunately for the working poor, it is hell. And because the poor hardly get enough education to escape poverty, the suffering continues from one generation to the next. For over a decade in the US, there has been a constant war by the rich on the poor in the form of declining opportunity to good education. Losing jobs to China is one thing, not given the opportunity to compete is another. Most Americans cannot assemble the iPod the way Chinese can, not because Americans are lazy, but because majority of Americans cannot read. Technically, the US population is illiterate compared to the Chinese. Americans teens can play the Xbox, Chinese teens can build the Xbox.

Globalisation only benefits the well-heeled upper class whose capital is used as an offensive advantage in the war between the haves and the have-nots. So far, the haves have been winning and their success seems to be increasing everyday as their friends in the government circles preach Globalization.

Posted by OCTheo | Report as abusive

ah but think about this…..

….the career life cycle of an engineering or design job is getting shorter. The amount of time a specific skill remains relevant is getting shorter.

The next generation of engineers, comes out of school, with the knowledge that took the last generation, years to learn……….

The number of engineers required to do a job is less than it used to be.

Those high wages, probably won’t last a life time.

Posted by Robertla | Report as abusive

No, the high wages won’t last a lifetime for an engineer, and the answer he/she will be given is to go back to school and learn skills for another job that will be useless in ten more years, or even less.

Posted by lhathaway | Report as abusive

OCTheo… why do you consider the relation between haves and have-nots a war? Would you not collect more money when given the chance (education, luck, intuition, etc.) to do so? Much of the assistance to the poor in the rest of the world is provided by the “haves”. Certainly, more could be done, and the disparity is large and growing. What is the “right” amount of disparity? Or, should all be endowed with and equal wealth? Technology may one day be able to eliminate poverty, but technology will not advance without the investment made by the “haves”.

Posted by billydd | Report as abusive

” Technically, the US population is illiterate compared to the Chinese. Americans teens can play the Xbox, Chinese teens can build the Xbox.”

You have never been to China have you? China is full of illiterate people, and most young people spend their entire young lives playing video games. The US is still more educated than the chinese ever have been, but the US needs to continue to hold on to its lead in science and engineering education by investing more in the future of our education system. I’m not sure what to make of your comment about Americans not being able to read. The US has near 100 percent literacy rates, even with a large population of immigrant who don’t have English as their first language. You should get your facts right.

After working in China for the past 7 years, I wouldn’t say the Chinese have an advantage on the US in anything other than cheap labor. This is running out since most Chinese are demanding higher wages. The Chinese miracle story is almost over, and we will have forgotten them just like we have forgotten the russians and Japanese before. I, myself, am even planning on leaving china as I don’t see much of a future here as I do in the US.

Posted by hellomyman | Report as abusive

[...] in relation to the iPod in this paper. There’s a reasonably conventional look at the paper here, at Reuters.The bits that fascinate me are not the actual numbers themselves, but what they go on to tell us [...]

Apple screwed the dealers that kept them alive during Apple’s darkest hours. They moved jobs off shore, just like other hi-tech companies. I say pass legislation to force jobs back to the US, or have the company’s pay such high tariffs to bring their products into the US that no one will want to buy them.

Posted by longislander | Report as abusive

Engineering and other professional jobs are moving overseas as quickly as companies like Apple, IBM, and Microsoft can offshore them. Demand for those employees in the US will continue to shrink for the next several years until economies in Asia, South America, and Africa are consuming enough to increase global demand.

Both skilled and unskilled workers in Western countries won’t be able to compete for jobs until currencies and cost of living are in balance with offshore countries.

Posted by Tom_in_PA_USA | Report as abusive

Apple deserves well earned commendation for it’s lead in innovation and styling from the competition by a decade.

However, it loses this edge over time for lack of compliance to industry standards. With regards to its social responsibility, it’s just another company that ranks poorly and in-line with the rest of the companies, considering the ratio of its sales revenue vs. job creation in the region.

Posted by Mott | Report as abusive

I enjoyed the article. I wonder what is the fix?

Posted by M.C.McBride | Report as abusive

Time to export / exile the rich, forbid them participation in our economy including the right to own property of any kind, and start over. America for Americans, now. We must put up punitive import barriers to goods, must ban taxpayer subsidized education of foreigners, stop immigration dead, and export our global enemies who have arrogated the term “American” to themselves.

In short, we need to start this country over. Our current path and our 18th century “Constitution” are clear failures. We need to restart and to prohibit the practices that have ruined representative government here. And devalue to dollar until it becomes competitive, no matter how low it must go. Who cares if ski trips to Switzerland become unaffordable? Not those of us sleeping under bridges.

Posted by txgadfly | Report as abusive

The true is that there is nothing wrong to send jobs overseas; it generates high revenues for the country and for the shareholders. What we should do is to educate our children’s to be leaders on the industry so they can create more companies like apple. Do not blame the situation on globalization. Globalization is big part of our economy today.

Posted by Everc78 | Report as abusive

Robertla may be “spot on”- but the career life of a engineer need not be short whatsoever. I would maintain that the career engineer begins to succumb to the same self induced illusion that the worker in Detroit has assembling auto’s. That is that the talents that got me here (at $x/hr) are always going to be worth as much. And while that Detroit worker has found that getting paid $40/hr to put a tire on a rim is no longer sustainable in today’s market, they also share in the same lapse in judgement as the engineer- that is the company “owns” my future and therefore it is up to that company to keep me “current”. Unfortunately that is obviously no longer true, and increasingly you are left to your own educational devices to stay current.

However the good news is, that with today’s technology advances one of the most dramatic shifts in learning ever known to mankind has happened via the web- educational information everywhere. And as an example given by Ron_Paulite and his mention of Python coding, a simple search found numerous free & complete tutorials online that can show me much of what I need to know! I’m 48 and this is how I stay abreast of technology- why can’t others. I don’t need my company to come to me and say “you will need to know about this in order to keep your job- oh, and by the way the company will send you offsite for x weeks to do training”. I do it because it’s interesting and I want to know “it”. Does it take personal sacrifices- absolutely.

It’s disappointing that we as a society choose to prioritize nearly everything else ahead of our own future once we reach our first salaried job and then place the blame for not keeping our own careers going on the corporation/business that hires us- or even more puzzling yet- the government who is now sitting on a “talent” pool which now represent yesterday’s technology. And worst yet people do this with all the resources they need to move forward and stay current, if not recapture global position, but choose to hide behind misplaced blame and the nanny state philosophy of blaming someone- anyone- else.

Try taking a moment from your latest reality show, or posting a sarcastic and ill-conceived comment about how this or that president or party has let you down and use this very same computer that you are whining through to do something most magical- Train Yourself!

Posted by mynamehear2 | Report as abusive

My reaction about this article is – nuts.

Apple Economy?

Apple is a company that build cool gadgets. But no more. Apparently, these gadgets got to the author’s mind and turn it into Swiss cheese.

Remove Apple from Earth and what’s the impact? A bunch of kids will get angry. But they will move on with other throwaway gadgets and life goes on. All, I mean ALL of Apple products can be immediately replaced by existing products in the marketplace without so much as a hiccup.

Try removing IBM, Cisco, Oracle, Microsoft – to take a few US IT company example. Entire economic sectors will collapse. Or try removing Boeing, GE, Caterpillar, Exxon, or even the ‘dull’ farming sector.

Far far more people are employed in these far more important companies, doing far more important work.

Do you know what the problem with Apple ‘cool’ gadgets? They are nothing more than fashion – come today, gone tomorrow.

Posted by TomKi | Report as abusive

In the ’80s I worked in Moscow. Most engineers enjoyed invitational travel to China, Japan, etc. — in part, for creature comfort, partly intellectual exchange. I asked the head of the most respected engineering union about foreign ideas: what ideas and/or technolgies were new/attractive. His reply, after 30 years of travel, “They (China/Japan/India) have no new ideas. No new tehnologies.” While Russians always admire their own science/scientists, they all believed that the spirit of innovation continues in the USA — and Russia. Today, is there a Chinese/Japanese/Indian, etc. engine of innovation, new ideas? That said, we still use the Russian rockets to reach outerspace! They still work even at the edge of the unknown! Thus, this is more a discussion of trade-offs. The iPad does not “solve” global anything — a fine, expensive “can opener”. Yet, adherents belive that it empowers exchange! Postage stamps do as well! Thus, as global economies shift, innovation, discovery remain!

Posted by DJRP | Report as abusive

Far from being “spot on” this article is ridiculous. The press and liberals want to find something negative in every trend. So the engineers who designed the thing are paid more than people who work in retail outlets or people that solder the parts together, and this is a surprise? This is a problem? No that’s the way its supposed to be. Are you suggesting that the people who actually created the device should not be compensated for their efforts? This sounds like veiled Stalinism.

Also, you need to realize that while wage standards are not the same in China and the US neither is the cost of living. Wages in China are growing at a fast rate as well. Over time, the fact that these devices are built in China is going to create a solid “middle class” over there.

This report also neglects to mention the tens of thousands of people making money selling iPhone apps, which is another economic boom -created by the very thing the article criticizes. Many of those people are in the US.

Its interesting that someone here suggested “exiling” the rich and banning them from participating in the economy. Well go ahead and try that and see how many jobs are created then.

Posted by DesertDan | Report as abusive

Does the profit made by Apple overseas match or exceed what is paid to overseas workers? This might add some perspective to “money going overseas”.

Posted by Pon | Report as abusive

At least Apple is creating some jobs. Nobody’s ever satisfied. How many jobs are the “scholars” creating.

Posted by Crybaby | Report as abusive

your poor because you can’t start a legit business. rich people have money because they understand finance and economics. they have provided a service or goods to the overall society that you couldn’t provide yourself and without them you would be worse off than you are now. thier are multiple variables on why you are struggling and you want to point a finger at everyone with money.that is not the solution. technology has replaced majority of human labor and economic globalization have made it harder for you as an american to compete because in reality there are people who can do your job for cheaper. it’s retarded for you as an american to say you are entitled to the jobs provided by the wealth. its a global market and the world is getting smarter creating more compition and your lagging behind.

Posted by learneconomics | Report as abusive

Constant reference to cheap labor is just simplifying the issue. It’s just the surface.
You think those poor Chinese made a “choice” to take those cheap jobs?
Right now in the U.S., those nice numbers in new jobs come in the form of temporary McDonald’s vacancies.
And who’s taking those jobs? You got it, those with no choice.
Those guys are paid USD200/month assembling your i-phone.
If they stay at home, the probably make that much in a year, tilling the dead soil.

Posted by doctorjay317 | Report as abusive

This analysis completely overlooks the $17 BILLION in payouts from Apple to the various labels, artists, studios and app developers that provide the content that makes them sell in the first place. Content which overwhelmingly comes from America.

Posted by eponym | Report as abusive

Free trade with developing countries has caused our economy to stagnate; the housing bubble covered this up. The U.S. economy has only grown about 1% annually for the past decade if you take out the effects of stimulus and the housing bubble; we need 3-4% annual growth to avoid increases in unemployment.

U.S. manufacturing jobs have declined from 17 million in 2000 to 12 million today. Our trade deficit is $650 billion in goods offset by $150 billion surplus in services, for a net $500 billion deficit. At $50k per job, this is about 10 million jobs. By definition¬, this amount must be borrowed to finance the trade deficit.

The U.S. debt to disposable income ratio has risen from 80% in 1990 to 120% today. About 25% of cars were bought with home equity loans in 2007; this source of funding has since dried up, leaving government the main recourse for loans.

Krugman: “In fact, it’s hard to avoid the conclusion that growing U.S. trade with third world countries reduces the real wages of many and perhaps most workers in this country…¬The trouble now is that these effects may no longer be as modest as they were, because imports of manufactured goods from the third world have grown dramatically — from just 2.5 percent of GDP in 1990 to 6 percent in 2006.”

Our blind allegiance to free trade with low-income countries must cause our income to fall; we are attempting to hide this effect with borrowing.

Posted by Farcaster | Report as abusive

Re those 27000 non-US jobs: bear in mind that the level of automation and process improvement in these manufacturing facilities has to do with wage levels: the higher the wage level, the more sense it makes to invest capex and process-improvement though, and conversely. So if these functions were being performed in the U.S., the number of jobs would be far less than 27000, while the wages would be higher, as would (probably) the product prices.

Posted by PhotonCourier | Report as abusive

Congratulations, you managed to write an entire article about who Apple helps economically, without ever mentioning those Apple has a legal duty to enrich, the whole reason it exists: The stockholders like myself.

Corporations are not jobs programs, Chrystia. They are investments for people like myself. Go check all the pension and mutual funds out there and see how Apple has helped the middle class investor!

Posted by JDSoCal | Report as abusive

Fears of being Bangalored.

Posted by Ismailtaimur | Report as abusive

I cant help but wonder; isn’t America purportedly the forerunners and the flag bearers of Capitalism? If you swear by it, then, you should also realize that it’s (economy)playing by the capitalistic rules. “Survival of the fittest”. You reap what you sow.

World bank, when asked for a loan by India, when we had no money, told us that we needed to open up the economy so that the richer countries with all the glitz and glamor could waltz in and pitch their products/ services.We did. Eventually, we got good at your game. That’s all. Better be prepared to share some of the wealth.

Footnote: I hear the union dude, who cuts grass at GM factory in Detroit,MI earns around USD 10K. My friend, who used to work there, obviously an indian, in suspension design (a guy with a PHd from a US university), earned 4.5K. So quit whining.

Posted by ChasingGods | Report as abusive

[...] your attention to a related subject presented in a Chrystia Freeland post at Reuters titled, "Winners and losers in the Apple economy". Ms Freeland writes:Greg Linden, Jason Dedrick and Kenneth L. Kraemer, a troika of scholars [...]

[...] more interesting, as Chrystia Freeland at Reuters points out, is that Americans got the biggest boost in incomes from the invention. The 13,920 American workers [...]

[...] more interesting, as Chrystia Freeland at Reuters points out, is that Americans got the biggest boost in incomes from the invention. The 13,920 American workers [...]

[...] more interesting, as Chrystia Freeland at Reuters points out, is that Americans got the biggest boost in incomes from the invention. The 13,920 American workers [...]

You wrote, “One of their findings is that in 2006 the iPod employed nearly twice as many people outside the United States as it did in the country where it was invented — 13,920 in the United States, and 27,250 abroad.

You probably aren’t surprised by that result, but if you are American, you should be a little worried”

Worried, why? Without the iPod, would we have those 13,920 US-based jobs?

Your statement reminds of a survey Time Magazine did a long while ago, when Japan was ascendant. They asked Americans something along the lines of which would they prefer:
A) Japan GDP growth of 20% and US GDP growth of 10%, or
B) Japan GDP growth of 5% and US GDP growth of 3%.

The respondents overwhelmingly chose B. This makes no sense to an economist, as choosing A would mean US GDP growth of 10%! However, the respondents would rather get lower GDP growth if they felt that they were losing less ground to another country. They overwhelmingly chose B, because Japan had slower growth.

This is analogous to your statement. We shouldn’t worry that foreigners got 27,250 jobs. We should be extremely pleased that American innovation created 13,920 US jobs, with half of them being high-quality engineering jobs.

Posted by ChKen | Report as abusive

[...] Much, much more in the full article – recommended – here. [...]

[...] by three scholars who studied how the iPod has impacted the world economy. Freeland's assertion in "Winners and Losers in the Apple Economy" is that "the key to understanding the U.S. economy" is any device created by Steven P. [...]

[...] who studied how the iPod has impacted the world economy. Freeland’s assertion in “Winners and Losers in the Apple Economy” is that “the key to understanding the U.S. economy” is any device created by [...]

[...] by three scholars who studied how the iPod has impacted the world economy. Freeland's assertion in "Winners and Losers in the Apple Economy" is that "the key to understanding the U.S. economy" is any device created by Steven P. [...]

[...] by three scholars who studied how the iPod has impacted the world economy. Freeland's assertion in "Winners and Losers in the Apple Economy" is that "the key to understanding the U.S. economy" is any device created by Steven P. [...]

[...] by three scholars who studied how the iPod has impacted the world economy. Freeland's assertion in "Winners and Losers in the Apple Economy" is that "the key to understanding the U.S. economy" is any device created by Steven P. [...]

[...] who studied how the iPod has impacted the world economy. Freeland’s assertion in “Winners and Losers in the Apple Economy” is that “the key to understanding the U.S. economy” is any device created by [...]

[...] who studied how the iPod has impacted the world economy. Freeland’s assertion in “Winners and Losers in the Apple Economy” is that “the key to understanding the U.S. economy” is any device created by [...]

[...] Chrystia Freeland | Analysis & Opinion | Reuters.com [...]

[...] interesting article about what the tech economy means for the global division of labor ends by interviewing a private equity investor at a best-and-brightest* [...]

[...] Chrystia Freeland opisała niedawno ciekawe badanie dotyczące produkcji iPoda.  Jego autorzy dokładnie przeanalizowali ile miejsc pracy i jak płatnych powstało przy tworzeniu i produkcji tego modnego gadżetu. I choć Apple stworzył dwa razy więcej miejsc pracy poza Stanami Zjednoczonymi, to w całym funduszu płac zdecydowanie dominowały Stany Zjednoczone. [...]

Many commentators are worried about skill obsolescence. Goes hand in hand with gadget obsolescence. Hang on to your 1985 iPad and no one gets hurt. Apple’s impressive record is not in generating innovation but generating demand for new trinkets in preference to trinkets you own that are barely six months old. Mainstream media’s excessive focus on phones and tablets and their sales goes a long way to show the extent of stagnation in the real economy worldwide. The real economy comprising sustainable agriculture, cleaner energy sources, urban and rural planning, are crying out for intelligent investment that will also be high-return. One ignores those in preference to glamour trinket peddling at one’s peril. Caused by the corrupt finance markets, obviously.

Posted by pbcr | Report as abusive