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Job growth was high on the agenda when President-elect Donald Trump met with leading tech executives at Trump Tower this week. But that might be a tall order for the companies to fill.
Executives from some of the most valuable U.S. companies, including Facebook Inc. and Alphabet Inc.'s Google, gathered with Trump Dec. 14 and discussed creating more jobs for U.S. workers, among other issues. Tech has been criticized for producing few jobs and contributing to growing inequality in the U.S. despite the high revenue growth and soaring valuations companies have enjoyed during the Obama administration. Trump has targeted Apple Inc. to grow U.S. manufacturing jobs by bringing its manufacturing back from China.
But the tech industry may have a hard time delivering on job growth because of economic realities, such as cost pressures to outsource IT jobs; the lack of homegrown talent, which pushes companies to seek more foreign worker visas; and the development of robotics and artificial intelligence that threaten low-skilled jobs across industries.
“Often technology will create these winner-take-all-markets where a single piece of software can do the work of hundreds of thousands of people, and whoever invented that software can become very wealthy,” Erik Brynjolfsson, director of the Massachusetts Institute of Technology Initiative on the Digital Economy, told Bloomberg BNA.
Creating jobs has often been tricky in an industry that prides itself on efficiency and low overhead.
Two of the industry’s largest companies by stock market value, Facebook and Google, have a combined total of fewer than 86,000 employees, according to company data compiled by Bloomberg. Messaging service WhatsApp had 55 employees when it was bought by Facebook for $19 billion in 2014. Instagram had only 13 staff members when it was bought by the social media giant for $1 billion in 2012.
Apart from low job creation at some tech companies, the industry has drawn ire from some critics for concentrating wealth in hubs such as Silicon Valley and Seattle.
“I think one of the challenges for the technology industry, through both their words and actions, is how do we get technology to be a force that’s going to be making Nebraska a stronger economy or making Wisconsin a stronger economy,” Robert Atkinson, president of the Information Technology & Innovation Foundation, or ITIF, a nonprofit technology think tank, said at a Dec. 15 panel hosted by the organization.
Trump told tech executives he is “here to help” them. He also needs the industry’s help to fulfill his promise to create 25 million jobs in the next decade. The industry has grown to an enormous economic engine during the Obama administration, generating $3.5 trillion in economic output in the U.S. last year, according to the Consumer Technology Association trade group.
But dollar signs do not always translate to jobs, especially in tech, Anurag Rana, a Bloomberg Intelligence IT and software analyst, said.
“It’s a non-linear relationship between revenue growth and head count growth in technology,” Rana said.
Trump has blamed American job loss on companies that outsource manufacturing. The president-elect has called for Apple to bring more of its manufacturing back to the U.S. from China, but that country has grown into a supply chain ecosystem for tech manufacturing, complete with low-cost labor. Moving operations back to the U.S. could add substantial costs to products for consumers, Rana said.
“It will require you to put substantial amounts of capital expenditures in the U.S. to create that level of scale, it’s just not going to be economical,” Rana said. “I don’t know what the cost of an iPhone would then be.”
Another area of the tech sector that will face an uphill battle in creating U.S. jobs is IT services. Low costs and a growing numbers of engineers in emerging economies are putting pressure on companies to outsource IT employees to countries such as India and the Philippines, Rana said. A full-time IT employee in the U.S. costs over seven times as much as one in India, according to data he cited from Everest Group, a research firm. The problem in IT services isn’t creating jobs, but filling them with American workers.“We have a huge shortage of technology workers in the U.S.,” Rana told Bloomberg BNA. “There are jobs, there just aren’t that many people to fill those jobs.”The U.S. Bureau of Labor and Statistics predicts there will be 1 million more computer science jobs by 2020 than there will be computer science students qualified to fill them in the U.S.
Apart from offshoring, the science, technology, engineering and mathematics (STEM) talent has led the tech industry to clamor for more foreign employees to fill positions, another move Trump has criticized. The U.S. maintains a cap of 65,000 annual H-1B visas a year for high-skilled workers.
But allowing more foreign high-skilled employees may actually create jobs for Americans, according to the American Enterprise Institute, a free market think tank. For every 100 foreign-born graduates with a U.S. advanced degree, 262 jobs for native-born U.S. citizens were created from 2000 to 2007, a 2011 study from the institute said.
To take advantage of this job growth strategy, however, the tech industry may need to convince Trump there’s a shortage of STEM workers and that an H-1B visa cap increase is needed. In August, Trump’s campaign said on its website that the U.S. graduates “two times more Americans with STEM degrees each year than find STEM jobs.” That language has since been removed. Trump has changed his stance on the H-1B visa program multiple times.
Apart from its own job growth, the tech sector has also come under fire for causing job loss in other industries. The expansion of robotics in manufacturing and artificial intelligence, especially in the self-driving car field, poses risks of automating humans out of jobs. As much as 47 percent of U.S. jobs could be eliminated by technology in the next two decades, according to a 2013 study by Carl Benedikt Frey and Michael Osbourne with the University of Oxford. Trump’s own choice to become secretary of labor has praised the benefits of automating jobs. Andrew Puzder, who has been serving as the chief executive officer of fast food chains Carl’s Jr. and Hardee’s, has said he wanted to fully automate his restaurants and eliminate employees.
It’s important to note that some technologies have eliminated jobs while others have grown them, James Bessen, a technology and patent-focused economist at Boston University School of Law, told Bloomberg BNA. For example, robots may be eliminating jobs in automotive manufacturing, but overall, computer automation is increasing jobs as industries like healthcare or services use technology to automate part of their work, he said.
The pain point is that manufacturing tends to create middle class jobs, and manufacturing workers who have been laid off may not have the skills for jobs being created in other areas, Bessen said. It is crucial for the Trump administration and the private sector to focus on policies that foster entrepreneurship, education and skill development in areas computers do not excel at, like creativity and interpersonal skills, Brynjolfsson told Bloomberg BNA.
“As technology helps to automate the job of a radiologist, there will be more need for humans to meet with the patients and discuss their treatment options in a compassionate way,” Brynjolfsson said.
But it’s not just job loss that the industry has to focus on, as technology can contribute to greater income inequality, Brynjolfsson said.
The median income for computer and mathematical science occupations in Silicon Valley was $102,000, compared to a country-wide average of $53,000 in 2010, according to data from the U.S. Census Bureau and Bureau of Labor Statistics.
Notably absent from Trump’s Dec. 14 meeting were Uber Technologies Inc. and Airbnb Inc., whose executives were invited but did not attend. Both companies have come under scrutiny for offering contracted workers a source of income without the benefits of a full time job.
But development of technologies such as cloud computing and data analysis also are contributing to the types of middle class positions the Trump administration has lamented have been lost by manufacturing, Atkinson said.
“I think it’s a question about being strategic,” Atkinson said. “How can the technology industry provide better jobs that create better incomes for people?”
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Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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