How Many Jobs Does Intellectual Property Create?

How Many Jobs Does Intellectual Property Create?

Eli Dourado, Ian Robinson | Aug 06, 2014

In the past two years, a spate of misleading reports on intellectual property (IP) has generated significant confusion among policymakers. Billed as empirical research, the reports aim to convince policymakers and the public that implausibly high proportions of US output and employment depend on expansive intellectual property rights.

But do as many as one-third of all US jobs depend on strong IP protection? Would millions of jobs be lost if IP laws were weakened? These reports, which attempt to uncover the link between employment statistics and intellectual property protection, don’t answer such questions. Instead they make the substantial leap from the fact that IP exists within a particular industry to the conclusion that job creation and employment in that industry hinge on strong IP protections. Yet these studies provide no theoretical or empirical evidence to support such a claim.

In March 2012, the US Patent and Trademark Office and the Economics and Statistics Administration copublished a report that sought to provide “a better understanding of the industries where IP plays a particularly important role.” Titled Intellectual Property and the U.S. Economy: Industries in Focus (hereafter referred to as IPUSE), this report identified 75 “IP-intensive” industry groups and estimated US employment and output for this set of industries in 2010. According to the report, IP-intensive industries directly accounted for over 27 million jobs (roughly one-fifth of all US employment) and added just over $5 trillion in value to the domestic product.

The US Chamber of Commerce’s Global Intellectual Property Center launched a campaign called IP Creates Jobs for America, which provides an online, interactive map as well as several descriptive reports about US employment and output “driven” by strong IP protection. The Global Intellectual Property Center’s mission is “to champion intellectual property (IP) rights as vital for creating jobs.” The campaign estimates that IP accounts for 55.7 million jobs and $5.8 trillion of GDP, numbers it reaches by emphasizing the “indirect” employment effects of IP.

The IP Commission Report, released in May 2013, estimates that US firms experience over $300 billion in lost revenues annually due to IP infringement. This report claims that stronger IP protections overseas would lead to the addition of millions of jobs to the US economy, greater research-and-development investment, and increased domestic growth. It draws such conclusions based on the connection between the importance of intellectual property to small businesses and the supposed role of small businesses in job creation. The report walks readers through the example of a hypothetical start-up biotech company that is vulnerable to IP theft and is forced to close and lay off all its employees if and when its IP is stolen by a foreign entity. Stronger IP protections, it is argued, would prevent such events from happening in real life, leading to increased employment in the United States.

Finally, the International Intellectual Property Alliance released Copyright Industries in the U.S. Economy in 2013. The report finds that “core copyright industries” have accounted for more than $1 trillion of US GDP in recent years, and that the figure is rapidly rising. Counting related industries, the statistic is even higher—$1.7 trillion in 2012.

The figures presented by these reports are striking, and they are supported by anecdotes of piracy and IP theft from around the globe. The reports have influenced the policy discussion in Washington. For example, in a July 2013 op-ed, Rep. Marsha Blackburn opens by citing the US Chamber of Commerce’s report: “U.S. industries reliant on intellectual property supported more than 55 million jobs, contributed to $5.8 trillion in economic output and accounted for nearly 74 percent of total exports. These figures prove what should be obvious: Strong intellectual property (IP) rights are essential to expanding economic growth and fostering innovation.”

However, the claims are unsupported by any evidence linking job creation to intellectual property. These reports possess a common underlying assumption regarding both the causality and the predominance of intellectual property in creating jobs within US firms. For instance, IPUSE frames its analysis by describing intellectual property as the “key force behind U.S. economic growth and national competitiveness” and the protection of IP as the “key to creating new jobs and growing exports.”

In this paper, we explore the assumption that jobs in IP-intensive industries are necessarily IP-created jobs. We first explore issues regarding job creation and the economic efficiency of IP that cut across the various forms of intellectual property. We then take a closer look at these issues across three major forms of intellectual property: trademarks, patents, and copyrights.

IP and the Economy

Before addressing some issues associated with the employment analysis of each of the three major forms of intellectual property, it is worth evaluating some of the problems that cut across trademarks, copyrights, and patents. Even at a general level, it is fallacious to equate employment within an IP-intensive industry with an economic benefit of IP.

Perhaps most fundamentally, jobs are not ends in themselves, and counting the number of jobs created is therefore not the best way to evaluate a policy. As Bryan Caplan notes, “Economists have been at war with make-work bias for centuries. [19th-century French economist Frédéric] Bastiat ridicules the equation of prosperity with jobs as ‘Sisyphism,’ after the mythological fully employed Greek who was eternally condemned to roll a boulder up a hill.” Economic progress, Bastiat says, is defined by an increasing ratio of output to effort—indeed, economic nirvana is achieved when there is high output and zero labor effort.

Lawmakers could create jobs by requiring that construction projects be performed with spoons instead of shovels or tractors. Such a policy, however, would reduce worker productivity and decrease total economic output. Consequently, this spoon mandate would not promote economic progress.

Likewise, some of the jobs created by IP may harm the economy instead of helping it. Suppose IP laws necessitated that every firm hire 10 additional IP lawyers, but otherwise left output unchanged. IP could be said to create millions of additional jobs, but these would be jobs that reduced real output per worker, jobs that moved society further away from economic nirvana. They should be reckoned as economic costs of IP, not economic benefits. If (counterfactually) this were the only effect of IP, then abolition of IP would mean that the effort of the heretofore unproductively employed IP lawyers could be redirected to more productive uses.

Second, an accounting of the employment created by intellectual property necessarily focuses on what Bastiat called the “seen,” as opposed to the “unseen,” effects of IP. Consumers ultimately pay the salaries of any newly employed workers through their (now higher) expenditure on IP-intensive products. But in the absence of the “new employment,” consumers would have extra money to spend on other products and services, which would support the creation of different jobs, which of course cannot be observed. Unless the jobs that intellectual property creates are better for the economy than the ones that are replaced, IP at best moves jobs from this “unseen” domain to the seen one.

Third, as a matter of basic logic, it is not the case that every job—or even most jobs—in IP-intensive industries would not exist but for the existence of IP. The fact that an industry is IP-intensive, as defined by IPUSE, does not necessarily indicate that an industry’s output or employment is IP-dependent.

As a reductio ad absurdum, consider the blogging “industry.” As a matter of law, all authors are automatically, without registration or any other formal notice, bestowed with a copyright in their blog posts. Since the entire output of the blogosphere is copyrighted, under IPUSE’s methodology it would qualify as an IP-intensive industry (if it were considered an industry). Nevertheless, it seems clear that copyright protection accounts for at best a tiny sliver of bloggers’ output—the vast majority of blogs are accessible without a paid subscription, and many bloggers do not attempt to monetize their posts (with ads, say) at all.

If some industries resemble blogging—for example, if copyrights are automatically awarded but not relied on, or if patenting is done for primarily defensive purposes, or if trademarks exist but are rarely relied on by consumers—then IPUSE and the other reports that rely on simplistic counts of IP grossly overstate the number of jobs due to intellectual property. For these industries, IP intensity is not a reliable indicator of IP dependence.

Fourth, intellectual property is not the only way to incentivize creation and invention. Prizes and awards can stimulate production of new innovations or creative works. Assurance contracts, such as those enabled by new online crowdfunding platforms like Kickstarter and Indiegogo, are another mechanism by which creation can be rewarded. Governments or wealthy individuals can also commission creative works or fund research teams. When these studies estimate the number of jobs created by intellectual property, they typically make a static comparison to a baseline in which no other policies or institutions adapt to accommodate the need to incentivize creation. These studies will therefore overcount the number of jobs due to IP.

As a general matter, intellectual property law can overprotect as well as underprotect. When it overprotects, it creates jobs without a corresponding increase in real output, it creates jobs by destroying other jobs that are not accounted for, and at the margin it accounts for very little of the actual output created by supposedly IP-intensive industries. These facts should be borne in mind as we examine the specific claims that have been made about particular industries and kinds of IP.

Trademarks

Trademark-intensive employment appears to make up the bulk of the claimed IP-created jobs. The IP Creates Jobs for America campaign counted as IP-created any position within a company that reported positive research-and-development spending, as well as any position at a company falling within one of the six predefined copyright-intensive industries. Jobs that “depend” on trademarks were supposedly captured through the use of research-and-development spending figures, but how is not exactly clear. The analysis then used “multipliers” to more than triple the total number of jobs attributable to intellectual property. Putting aside these questionable methods, the IP Creates Jobs for America publications fail to provide a breakdown of the number of jobs attributable to each type of intellectual property; it is therefore not entirely clear by their account exactly how many jobs are associated with trademarks.

In contrast, the IPUSE authors developed clear and defensible methods for classifying industry groups as IP-intensive for each of the three major types of intellectual property in the United States. The analysis used four-digit North American Industrial Classification System (NAICS) codes to identify 75 industry groups as intellectual–property-intensive. Figure 1 shows the composition of jobs attributed to firms within IP-intensive industries based on IP type.

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