New Study Links Wireless Adoption to Jobs: It’s All About the Spectrum (and Siri)

Economists recognize that the source of sustainable, private-sector jobs is investment. Due to measurement problems with investment data, however, it is sometimes easier to link a byproduct of investment—namely, adoption of the technology made possible by the investment—to job creation. This is precisely what economists Rob Shapiro and Kevin Hassett have done in their new study on the employment effects of wireless investments.

Shapiro and Hassett credit the nation’s upgrade of wireless broadband infrastructure from second-generation (2G) to third-generation (3G) technology with generating over one million jobs between 2006 and 2011. To demonstrate that adoption of 3G handsets “caused” job creation in an econometric sense, the authors studied the relationship between the change in a state’s employment and the cumulative penetration of cell phone technologies. According to their econometric model, every 10 percentage point increase in the penetration of a new generation of cell phones in a given quarter causes between a 0.05 and 0.07 percentage point increase in employment growth in the following three quarters.

How reasonable are these results? In 2010, Bob Crandall and I estimated that investment in second-generation broadband infrastructure of roughly $30 billion per year, including wireless infrastructure, sustained roughly 500,000 jobs between 2006 and 2009. We further estimated that spillover effects in other industries that exploit broadband technology could sustain another 500,000, bringing the total job effect close to one million jobs per year. Although Shapiro’s and Hassett’s estimates (based on wireless deployment only) significantly exceed ours (based on all broadband deployment), their estimate is not outside the realm of the possibility.

Crandall, Lehr, and Litan (2007) also conducted a regression analysis using state-level broadband penetration data from 2003-2005 to estimate job effects. They projected that for every one percentage point increase in broadband penetration in a state, employment increases by 0.2 to 0.3 percent per year. On a national level, their results imply an increase of approximately 300,000 jobs per year per one-percentage-point increase in broadband penetration. Once again, Shapiro’s and Hassett’s estimates are consistent with this prior work.

Scholars may differ on the precise way to measure the employment effects, but that debate misses the more important policy point—namely, that broadband technologies generally and wireless broadband in particular have become a vital engine of job creation. The observed correlation between wireless adoption and employment is not accidental: To induce customers to adopt the coolest handset, firms must continuously invest in the next generation of network and device technologies. And these costly investments sustain jobs.

Moreover, contrary to the FCC’s opinion in its 15^th annual wireless competition report, private industry’s sustained and widespread investment in new wireless broadband technologies is consistent with the sector being intensely competitive. Industry critics have decried such evidence, arguing instead that the industry is in the death grip of monopolists. Although a monopolist may have an incentive to innovate to protect against a future threat, firms in a competitive industry have incentives to invest and innovate as a way to protect against losing market share today.

Policymakers should ask themselves this question: Why would wireless carriers continually invest billions of dollars on next-generation technologies if they could sit back and exploit their alleged monopoly rents? Experience and common sense tell us that in fact, companies in this space are not behaving like monopolists. Rather, wireless providers of all stripes are desperately trying to distinguish themselves from their rivals. Wireless tablets and phones are driving demand for more and faster wireless broadband, while spectrum-devouring apps like Siri have captured the imagination of millions. The wireless arms race is on, and the U.S. economy stands to benefit directly as wireless companies try to outmaneuver one another with the fastest networks, coolest devices, and deepest array of killer apps.