Pokemon Go has racked up some amazing numbers since its July 6 launch: nearly 55 million U.S. users in its first month, including a peak of about 21 million daily active users spending more than a half-hour a day playing the game that's free to download.
The most impressive number of all may be the billions of calories burned by kids out to catch the Nintendo (NTDOY) anime creatures. Yet there's one number that's bound to underwhelm: its impact on GDP. And that's nothing new when it comes to today's breakthrough technologies and products.
Technological innovation is making people richer, but not necessarily in ways that pay the bills. In terms of good-paying jobs, it's had a bite-size impact since the dot-com boom.
A common feature of some of today's most transformative tech innovations is that the end users often don't have to pay anything. SocialFlow, a social media management company, estimated this spring that the free publicity that Donald Trump's presidential campaign got from social networks like Facebook (FB), Twitter (TWTR) and Snapchat was equal to $380 million in paid advertising.
Among the reasons that the U.S. economy has been in a prolonged growth slump is because of the way GDP is measured. GDP excludes what is known as the consumer surplus, which is how much value people derive from something in excess of how much they have to pay.
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While the consumer surplus is hard to quantify, some economic analysts think it's huge.
"By our usual GDP measurements WhatsApp is worth nothing ... or perhaps $100 million (if measured in terms of the income of its engineers). And yet there's some 1 billion people getting some to all of their telecoms and communications needs from this service," wrote Forbes columnist Tim Worstall, a fellow at the London-based Adam Smith Institute.
Value Beyond GDP Numbers
While millions of people are playing Pokemon Go for free, many others are spending money on in-app purchases to help speed their progress in the game. The most up-to-date stats reveal that the mobile game has grossed $440 million worldwide, meaning Pokemon Go has eclipsed the earnings of some summer blockbuster movies.
That sounds pretty huge, but when you consider that 500 million people have downloaded Pokemon Go, and 30 million to 40 million have played the game for about a half-hour each day, the spending comes out to something less than 50 cents for an hour of play — roughly one-tenth of the cost of an hour at the movies.
Although it's unclear whether the Pokemon Go craze contributed to the summer movie slump, it is clear that people are deriving a lot more in value from the game than they are paying out of pocket. Shortly after the game's launch, researchers Michael Farren and Adam Millsap at George Mason University's Mercatus Center figured that Pokemon Go players were easily getting more than $7 in value for every $1 spent — "even if the average consumer surplus is only a measly dollar an hour."
It's worth considering that playing Pokemon Go requires the GPS capability that comes with every smartphone and that we all now take for granted. In his 2012 book, "Abundance: The Future Is Better Than You Think," XPrize founder Peter Diamandis offered a reminder of just how much we take for granted. Taking decades-old list prices for the GPS, videoconferencing, digital voice recorder, video camera, digital camera, encyclopedia, music player, video game console and everything else that comes included, he calculated that there's more than $900,000 worth of applications in every smartphone.
The implication is that traditional measurements vastly understate the impact of recent technological innovation in boosting our quality of life. Yet, when it comes to the things most people think of when they think about financial well-being — the number of good-paying jobs and the size of the economic pie as defined by GDP — the current era of technological innovation has fallen short.
Technology leaders such as Apple (AAPL), Facebook, Amazon (AMZN), Netflix (NFLX) and Google-parent Alphabet (GOOGL) have transformed how we connect — to friends, politicians, businesses and information. So you'd expect to see a dramatic impact on employment and output.
Yet in those terms, the companies don't compare to some older industries.
Apple, Google and Facebook, three of the largest companies by market capitalization, combined, employed only about 185,000 worldwide at the end of their 2015 fiscal years. By contrast, General Motors (GM) had 653,000 U.S. workers at its 1979 peak.
High Revenue Per Worker
Facebook's 12,691 employees generated $17.9 billion in revenue in the latest fiscal year, or $1.4 million per employee. Alphabet, despite staffing up to pursue other bets that so far amount to less than 1% of its revenue, generated $1.2 million per worker.
When Alphabet releases a Google Maps update, it can go to everyone with relative ease. When General Motors introduces a new model, it has to retool factories, make each car or truck individually, then transport them to far-flung dealerships for sale. All of that takes labor, often highly paid.
Apple's $2.1 million per employee doesn't really compare, given its large contract-manufacturing workforce. Meanwhile, an average Microsoft (MSFT) employee generates a more moderate $800,000 in revenue.
Outside the tech sector, revenue per employee is lower still. General Electric (GE) is at $350,000 and Johnson & Johnson (JNJ) at $550,000. General Motors is at $700,000, excluding its network of independent dealers.
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No Tech Job Growth
As for tech employment overall, the sector took 15 years to finally top its 2000 dot-com peak of 6.6 million jobs. After adding nearly 200,000 jobs in 2015, it now employs 6.7 million people, the Computing Technology Industry Association said earlier this year.
The reason it took so long was the big shift in tech manufacturing out of the U.S., as the dot-com bust and China's emergence led to a wave of outsourcing. From the end of 2000 through 2015, the U.S. tech industry shed more than 800,000 factory jobs, or 44%. More than a half million of those jobs were gone by the end of 2003.
In this context of slow economic growth, weak wage gains and anger over the lost factory jobs, Donald Trump has made it a campaign speech staple to pledge that if he's elected, Apple will make its iPhones in the U.S., not in China.
The logistics of shifting production from China, where some 250,000 Foxconn workers assemble the iPhone, are daunting and would entail intensive training of U.S. workers. If it were feasible, it would substantially raise the cost of an iPhone — even if the U.S. workers made little more than the minimum wage.
Instead of a tech job boom, jobs in health care, social assistance, leisure, hospitality, retail and government account for 99.5% of all net employment gains dating back to the end of 2000, Labor Department data show. Since mid-2007, those sectors minus government account for about 94% of net new nonfarm jobs.
That helps explain why productivity gains have been so weak since the recession, says Lakshman Achuthan of the Economic Cycle Research Institute.
"Economic growth, such as it is, has been skewed toward growth in the number of hours worked, largely in lower-wage service sector jobs, while capital investment has taken a huge hit" in the aftermath of the Great Recession, Achuthan wrote.
The Productivity Growth Problem
While companies outside the tech sector have bolstered tech employment internally, the surprising truth is that the latest wave of innovation has benefited relatively few workers directly, and the economywide impact also has been limited. Those facts help explain weak economic growth, weak wage growth and the rise of political populism.
If productivity, a measure of output per worker hour, had continued to grow at its pre-2004 rate, the economy would be about 15% bigger, calculates University of Chicago economics professor Chad Syverson. That's another $2.7 trillion, or $21,900 per household. If that had been the case, one can imagine that the 2016 election cycle would sound a whole lot less angry.
Instead, productivity growth has crawled at an average 0.5% a year over the past half-decade, Labor Department data show. That compares to 2.4% annual gains over the prior two decades.
Even when you strip out the productivity drag from falling capital intensity, which is the amount of capital per worker, the modest lift from the tech sector is clear.
Multifactor productivity is the component of productivity growth that serves as "a measure of innovation's contribution to growth" because it reflects efficiency gains that aren't directly explained by the capital and labor inputs, explains economist Robert Gordon, a professor at Northwestern University.
Hope For Improvement
The digital revolution did help produce a decade of rapid multifactor productivity growth from 1995 to 2004 — an average of 1.4% a year. But "the acceleration died out quickly because most of the economy had already benefited from the Internet revolution," Gordon argues in "The Rise and Fall of American Growth."
Despite the rise of cloud computing, the app economy and social media over the past decade, multifactor productivity growth slowed to 0.4% a year.
As George Mason University economist Tyler Cowen writes, "While information technology remains the most likely source of future breakthroughs, Silicon Valley has not saved us just yet."
But technology has given entrepreneurs a low-cost platform for innovation. That lets relatively few people do big things. It also helps individuals to connect with people who want what they have to offer — from a spare room (Airbnb) to their back seat (Uber) to a handyman (TaskRabbit).
In fact, the augmented reality technology behind Pokemon Go that lets players see Pikachu in their offline environment, is viewed as one likely source of future productivity gains.
"AR, despite the Pokemon Go hype, is actually primarily a business tool application that facilitates increased productivity among work groups," writes Tim Mulligan of Midia Research.
An internal study by Boeing (BA) found that trainees assembling a wing were 30% faster and 90% more accurate on their initial attempt thanks to getting their instructions via augmented reality instead of a desktop computer.
Productivity growth was sluggish in the decade after Steve Jobs introduced the Mac. But one innovation built upon another and gave way to the internet era, so it's too early to rule out another productivity boom.
