PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

How Big is the Digital Economy?

By at 12 April, 2019, 10:10 am

…it is bigger than what’s being formally reported.

by Raymond J. Keating-

The U.S. Bureau of Economic Analysis released a report early this month estimating the size of the “digital economy.” According to this analysis, the digital economy accounted for 6.9 percent of GDP, or $1.35 trillion, in 2017.

As noted in the following chart, the digital economy came in behind sectors like real estate and manufacturing, and ahead of wholesale, retail and construction.

What else did the BEA report? Consider:

●  “Digital economy real value added grew at an average annual rate of 9.9 percent per year from 1997 to 2017, compared to 2.3 percent growth in the overall economy.”

●  “The digital economy supported 5.1 million jobs in 2017, which accounted for 3.3 percent of total U.S. employment of 152.1 million jobs. The digital economy’s share of total employment is about same as the transportation and warehousing industry’s share.”

●  “Employees working in the digital economy earned $132,223 in average annual compensation in 2017, compared to $68,506 per worker for the total U.S. economy.”

Measuring the Digital Economy: What’s Included and What’s Left Out

There are questions, however. Namely, how is “digital economy” defined, and how limited is its scope? After all, the digital economy today touches nearly every sector of the economy.

The definition includes “only items that BEA has categorized as ‘primarily digital.’”

Specifically, “BEA includes in the digital economy the entire information and communications technologies (ICT) sector as well as the digital‐enabling infrastructure needed for a computer network to exist and operate, the digital transactions that take place using that system (‘e‐commerce’), and the content that digital economy users create and access (‘digital media’).”

What’s left out? The BEA explains:

“Goods and services categories based on the North American Industrial Classification System (NAICS) include digital goods and services as well as nondigital goods and services. While BEA’s conceptual definition of the digital economy includes all digital goods and services, BEA did not attempt to include partially digital items in the preliminary estimates or in these updated estimates. This means that some components of the digital economy, like peer-to-peer (P2P) e-commerce, also known as the sharing economy, are excluded from both sets of estimates. P2P transactions such as ride-sharing services rely on internet-enabled devices to match supply and demand, but they also have a nondigital component of in-person provision of services. Splitting the output of partially digital categories into digital and nondigital portions will require additional source data and other resources to accurately identify the share of output that is in scope for the digital economy. The work to identify data to include partially digital goods and services is ongoing.”

So, as the BEA gets more precise in its measurement, we’re going to see that the digital economy accounts for an even larger percentage of GDP, economic growth and jobs – and that should surprise no one.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

 

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