TABLE OF CONTENTS
Introduction - Carol Corrado, Jonathan Haskel, Javier Miranda, Daniel Sichel
DOI: 10.7208/chicago/9780226728209.003.0001
[innovation measurement;national accounts;intangibles;digitization;information technology;productivity;patents and trademarks;structural change]
The National Income and Product Accounts and other economic statistics—designed in an age when the structure of the economy was vastly different than that of today—do not yet fully account for the wide range of innovative activity that is plainly evident in everyday experience. This limitation of our existing measurement system significantly hinders researchers, analysts, and policymakers. Better measures of innovative activity are necessary to understand the challenges and consequences of innovation and to inform the design of policies that best promote it. This conference and volume focus primarily on the challenges of how best to measure innovation, track its effects on economic activity and inflation, and to understand how innovation has changed the structure of an increasingly digitized economy. The papers also connect back to challenges of economic measurement that long have been the subject of CRIW conferences. (pages 1 - 16)
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Chapter 1. Expanded GDP for Welfare Measurement in the 21st Century - Charles Hulten, Leonard I. Nakamura
DOI: 10.7208/chicago/9780226728209.003.0002
[national accounts;internet;information;inflation;welfare]
The information revolution currently underway has changed the economy in ways that are hard to measure using conventional GDP procedures. The information available to consumers has increased dramatically as a result of the Internet and its applications, and new mobile communication devices have greatly increased the speed and reach of its accessibility. An individual now has an unprecedented amount of information on which to base consumption choices, and the “free” nature of the information provided means that the resulting benefits largely bypass GDP and accrue directly to consumers. This disconnect introduces a wedge between the growth in real GDP and the growth in consumer well-being, with the result that a slower rate of growth of the former does not necessarily imply a slower rate of the latter. The conceptual framework for this analysis is developed in a previous paper which extended the conventional framework of GDP to include a separate technology for consumer decisions, and developed the idea of Expanded GDP (or EGDP). In this chapter, we use this framework to provide a detailed critique of existing GDP and price measurement procedures and summarize the existing evidence on the size of the wedge between GDP and EGDP. (pages 19 - 60)
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Chapter 2. Measuring the Impact of Household Innovation Using Administrative Data - Javier Miranda, Nikolas Zolas
DOI: 10.7208/chicago/9780226728209.003.0003
[patents;household innovation;inventors;nonemployer]
We link USPTO patent data to U.S. Census Bureau administrative records on individuals and firms. The combined dataset provides us with a directory of patenting household inventors as well as a time-series directory of self-employed businesses tied to household innovations. We describe the characteristics of household inventors by race, age, gender and U.S. origin, as well as the types of patented innovations pursued by these inventors. Business data allows us to highlight how patents shape the early life-cycle dynamics of nonemployer businesses. We find household innovators are disproportionately U.S. born, white and their age distribution has thicker tails relative to business innovators. Data shows there is a deficit of female and black inventors. Household inventors tend to work in consumer product areas compared to traditional business patents. While patented household innovations do not have the same impact of business innovations their uniqueness and impact remains surprisingly high. Back of the envelope calculations suggest patented household innovations granted between 2000 and 2011 might generate $5.0B in revenue (2000 dollars). (pages 61 - 102)
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Chapter 3. Measuring the Impact of Household Innovation Using Administrative Data
DOI: 10.7208/chicago/9780226728209.003.0004
[innovation;productivity dispersion;productivity growth]
We examine whether underlying industry innovation dynamics are an important driver of the large dispersion in productivity across firms within narrowly defined sectors. Our hypothesis is that periods of rapid innovation are accompanied by high rates of entry, significant experimentation and, in turn, a high degree of productivity dispersion. Following this experimentation phase, successful innovators and adopters grow while unsuccessful innovators contract and exit yielding productivity growth. We examine the dynamic relationship between entry, productivity dispersion, and productivity growth using a new comprehensive firm-level dataset for the U.S. We find a surge of entry within an industry yields with a lag an increase in productivity dispersion and then after a subsequent lag an increase in productivity growth. These patterns are more pronounced for the High Tech sector where we expect there to be more innovative activities. These patterns change over time suggesting other forces are at work during the post-2000 slowdown in aggregate productivity. (pages 103 - 136)
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Chapter 4. How Innovative Are Innovations? A Multidimensional, Survey-Based Approach - Wesley M. Cohen, You-Na Lee, John P. Walsh
DOI: 10.7208/chicago/9780226728209.003.0005
[innovation;R&D;technological change;innovation surveys;innovation meausurement]
We suggest that, with proper design, innovation surveys can provide valuable data on innovation rates that inform judgments about whether the reported innovations are important, and in what sense, thus making such data more interpretable than claims that such innovations are simply “new.” First, we recommend asking respondents questions about a specific innovation in an identified line of business. Second, we recommend asking respondents to characterize their innovations in terms of different features that potentially link to the social welfare impact of the innovation. We propose five such features: technological significance, utility, uniqueness, imitability, and how different the innovation is from what the innovating firm has previously commercialized (what we call “distance” or the “implementation gap”). The chapter then illustrates the utility of our approach by, first, using newly collected data to construct measures corresponding to the proposed dimensions of innovation. We then use those measures to inform judgments about the importance of innovations in different industries. By recognizing the distinct features of innovations, we also showed how these features, when combined in novel and distinct ways, can provide a more nuanced view of innovation and its complexity. (pages 139 - 182)
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Chapter 5. An Anatomy of U.S. Firms Seeking Trademark Registration - Emin M. Dinlersoz, Nathan Goldschlag, Amanda Myers, Nikolas Zolas
DOI: 10.7208/chicago/9780226728209.003.0006
[trademarke registration filing;trademark application;innovation;research and development;R&D;selection effects;treatment effects;firm growth;firm life-cycle;firm dynamics]
This chapter reports on the construction of a new dataset that combines data on trademark applications and registrations from the U.S. Patent and Trademark Office with data on firms from the U.S. Census Bureau. The resulting dataset allows tracking of various activity related to trademark use and protection over the life-cycle of firms. Facts about firm-level trademark activity are documented, including the incidence and timing of trademark registration filings over the firm life-cycle and the connection between firm characteristics and trademark applications. The analysis indicates that trademark filing is correlated with employment and revenue growth. There appears to be strong selection into trademark filing for trademark registration based on firm size and age. Firms seeking trademark registration also have higher employment and greater revenue in the period following first filing relative to a control group. Firms with R&D and patent activity are also very likely to apply to register trademarks. (pages 183 - 228)
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Chapter 6. Research Experience as Human Capital in New Business Outcomes - Nathan Goldschlag, Ron Jarmin, Julia Lane, Nikolas Zolas
DOI: 10.7208/chicago/9780226728209.003.0007
[human capital;entrepreneurship;survival;UMetrics;high-tech;R&D]
Human capital is typically cited as an important contributor to the survival, growth and innovative activity of new businesses. This chapter contributes to the literature by both developing novel measures of human capital and examining the link between those measures and the outcomes of young firms. It builds on several strands of the literature which emphasize the importance of employee workplace experience as a dimension of human capital. It shows that the effects of work experience differ substantially by where an employee worked and is valued differently by firms in different sectors. This is particularly true for research experience, which is consistent with the notion that on-the-job training in complex tasks should be valuable to firms with complex production technologies. (pages 229 - 254)
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Chapter 7. Measuring the Gig Economy: Current Knowledge and Open Issues - Katharine G. Abraham, John C. Haltiwanger, Kristin Sandusky, James R. Spletzer
DOI: 10.7208/chicago/9780226728209.003.0008
[gig economy;gig worker;self-employment;non-employee work;linked data]
The rise of the “gig economy” has attracted attention from scholars and the popular media, mostly devoted to jobs mediated through online platforms. While nontraditional work arrangements have been a perennial subject of study, the perception that new technology is accelerating the pace of change in the organization of work has fueled interest in how such changes affect workers and firms. This chapter provides a typology of work arrangements and reviews how different arrangements, especially gig activity, are captured in existing data. A challenge for understanding recent trends is that household survey data show little evidence of the growth in self-employment that would be implied by a surge in gig activity, and administrative data evince considerable recent growth. An examination of matched individual-level survey and administrative records shows a large and growing fraction of those with self-employment activity in administrative data have no such activity recorded in household survey data. The share of those with self-employment activity in household survey data but not administrative data is smaller and has not grown. Improving measurement of self-employment activity may include adding more probing questions to household survey questionnaires and developing integrated data sets that combine survey, administrative and, potentially, private data. (pages 257 - 298)
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Chapter 8. ICT, R&D, and Organizational Innovation: Exploring Complementarities in Investment and Production - Pierre Mohnen, Michael Polder, George van Leeuwen
DOI: 10.7208/chicago/9780226728209.003.0009
[ICT;R&D;organizational innovation;productivity;investment;complementarity]
This chapter examines whether there are complementarities between investments in information and communication technology (ICT), in research and development, and in organizational innovation, and the contributions of different investment profiles to total factor productivity growth on Dutch firm-level data. We estimate an integrated model of investment profile adoption and total factor productivity growth. We find that the three investment decisions are complementary, in the sense that investing in one increases the probability of investing in another, because joint investments lead to higher total factor productivity growth than individual investments. ICT earns an average rate of return of 9.7%, followed by 6% to 7% on organizational innovation and a modest 1.4% to 1.8% on R&D in services and manufacturing respectively. (pages 299 - 322)
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Chapter 9. Digital Innovation and the Distribution of Income - Dominique Guellec
DOI: 10.7208/chicago/9780226728209.003.0010
[information technologies;innovation;income inequality;market structure;market concentration;creative destruction;social mobility]
Income inequalities have increased in most OECD countries over the past decades, and the income share of the top 1% has risen. In this chapter we argue that the growing importance of digital innovation—new products and processes based on software code and data—has increased market rents that benefit disproportionately the top income groups. In line with Schumpeter’s vision, digital innovation gives rise to ”winner-take-all” market structures, characterized by higher market power and risk than was the case in the previous economy of tangible products. The cause for these new market structures is digital non-rivalry, which allows for massive economies of scale and reduces costs of innovation. The latter stimulates higher rates of creative destruction, leading to higher risk as merely marginally superior products can take over the entire market, hence rendering market shares unstable. Instability commands risk premia for investors. Market rents accrue mainly to investors and top managers and less to the average employees, hence increasing income inequality. (pages 323 - 370)
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Chapter 10. Factor Incomes in Global Value Chains: The Role of Intangibles
DOI: 10.7208/chicago/9780226728209.003.0011
[intangibles;globarl value chains;factor incomes]
Recent studies document a decline in the share of labor and a simultaneous increase in the share of residual (“factorless”) income in national GDP. We argue the need for study of factor incomes in cross-border production to complement country studies. We define a GVC production function that tracks the value added in each stage of production in any country-industry. We define a new residual as the difference between the value of the final good and the payments to all tangibles (capital and labor) in any stage. We focus on GVCs of manufactured goods and find the residual to be large. We interpret it as income for intangibles that are (mostly) not covered in current national accounts statistics. We document decreasing labour and increasing capital income shares over the period 2000–14. This is mainly due to increasing income for intangible assets, in particular in GVCs of durable goods. We provide evidence that suggests that the 2000s should be seen as an exceptional period in the global economy during which multinational firms benefited from reduced labor costs through offshoring, while capitalizing on existing firm-specific intangibles, such as brand names, at little marginal cost. (pages 373 - 402)
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Chapter 11. Measuring Moore’s Law: Evidence from Price, Cost, and Quality Indexes - Kenneth Flamm
DOI: 10.7208/chicago/9780226728209.003.0012
[microeconomics of technological innovation;semiconductor industry;price index;hedonic model;computer industry]
“Moore’s Law” in the semiconductor manufacturing industry is the predictable evolution of a manufacturing technology platform that has continuously reduced the costs of fabricating electronic circuits since the mid-1960s. This chapter reviews how this progression delivered 20 to 30 percent average annual transistor manufacturing cost declines while it lasted. We review how other characteristics associated with smaller feature sizes created additional economic value, and assess their historical trends. These benefits pose special challenges for price and innovation measurement, and motivate quality adjustment methods when measuring semiconductor product prices. Empirical analysis reveals a slowdown in Moore’s Law as measured by quality-adjusted prices for the highest volume products: memory chips, custom chip designs outsourced to foundries, and Intel microprocessors. We assess whether Intel microprocessor price trends might diverge from those of other semiconductor chips. A model of chip characteristics’ effects on microprocessor performance is specified and tested in a structural econometric model of processor performance. A small set of characteristics explains 99% of variance across processor models’ performance on common benchmarks. The diverse effects of changing characteristics on manufacturing costs create a rationale for their inclusion in hedonic price models separate from their demand-side effects on computer performance. (pages 403 - 470)
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Chapter 12. Accounting for Innovations in Consumer Digital Services: IT Still Matters - David Byrne, Carol Corrado
DOI: 10.7208/chicago/9780226728209.003.0013
[consumer digital services;information and communication technology;consumer durables;consumer surplus;innovation;digital content delivery;national accounting;price measurement]
This chapter develops a framework for measuring digital services in the face of ongoing innovations in the delivery of content to consumers. We capture what Brynjolfsson and Saunders (2009) call “free goods" as the capital services generated by connected consumers’ stocks of IT digital goods, a service flow that augments the existing measure of personal consumption in GDP. Its value is determined by the intensity with which households use their IT capital to consume content delivered over networks, and its volume depends on the quality of the IT capital. Consumers pay for delivery services, however, and the complementarity between device use and network use enables us to develop a quality-adjusted price measure for the access services already included in GDP. Our new estimates imply that accounting for innovations in consumer content delivery matters: the innovations boost consumer surplus by nearly $2,000 (2017 dollars) per connected user per year for the full period of this study (1987 to 2017) and contribute 0.6 percentage points per year to US real GDP growth during the last ten. All told, our more complete accounting of innovations is (conservatively) estimated to have moderated the post-2007 GDP growth slowdown by 0.3 percentage points per year. (pages 471 - 518)
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Chapter 13. The Rise of Cloud Computing: Minding Your Ps, Qs, and Ks - David Byrne, Carol Corrado, Daniel Sichel
DOI: 10.7208/chicago/9780226728209.003.0014
[cloud computing;cloud computing prices;IT services;IT equipment investment;digitization]
Cloud computing—computing done on an off-site network of resources accessed through the Internet—is revolutionizing how computing services are used. However, because cloud is so new and it largely is an intermediate input to other industries, it is difficult to track in the U.S. statistical system. Moreover, there is a paucity of systematic information on the prices of cloud services. To begin filling this gap, this chapter does three things. First, we define the different segments of cloud computing and document its explosive expansion. Second, we develop new hedonic price indexes for cloud services based on quarterly data for compute, database, and storage services offered by Amazon Web Services (AWS) from 2009 to 2016. These indexes fall rapidly over the sample period, with quickening (and double digit) rates of decline for all three products starting at the beginning of 2014. Finally, we highlight the puzzle of why investment in IT equipment in the NIPAs has been so weak while capital expenditures have exploded for IT equipment associated with cloud infrastructure. We suggest that cloud service providers are undertaking large amounts of own-account investment in IT equipment and that some of this investment may not be captured in GDP. (pages 519 - 552)
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Chapter 14. BEA Deflators for Information and Communications Technology Goods and Services: Historical Analysis and Future Plans - Erich H. Strassner, David B. Wasshausen
DOI: 10.7208/chicago/9780226728209.003.0015
[information and communication technology;national accounts;price indexes;GDP measurement;hedonic methods;quality adjustment]
The accuracy and integrity of BEA’s featured measures, including inflation-adjusted (i.e., “real”) GDP, consumer spending and business investment, rely on the ability to accurately measure quality adjusted price indexes. It is often the case that high-profile, innovative goods and services that reflect rapidly changing technologies and notable improvements present significant measurement challenges using traditional approaches, especially when required to be produced at high frequencies. With an aim toward facilitating and encouraging further price research, this paper first provides a historical perspective and an analysis of BEA’s ICT prices, including an overview of the sources and methods used to construct BEA’s quality-adjusted prices. In the second part of the paper, we discuss current-work and future plans for continuing to ensure the accuracy of BEA’s price indexes and corresponding inflation-adjusted measures. Appendix A provides an update that assesses recent progress in price measurement as reflected in BEA’s 15th comprehensive update of the NIPAs, released July 27, 2018. (pages 553 - 572)
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