Is R&D off-shoring killing us?

Richard Florida asks a few questions about R&D off-shoring trends in this post at theAtlantic.

TheRaven ran a quick test to gauge whether R&D off-shoring has caused measurable harm to the U.S. economy. The operative question is whether the economic subset associated with innovation is growing faster or slower than the labor market as a whole. Jobs associated with R&D should grow if the innovation process is out-pacing the economy and compensating for off-shoring. Conversely, if R&D employment is falling, then increased R&D off-shoring can be viewed as an existential threat, not the more benign balancing of national strengths in a global economy.

Bureau of Labor Statistics (BLS) occupation employment data was used to address this question. The BLS publishes pay range and employment data for a constant list of 800 occupations, each May. I have this data by 4-digit NAICS (North America Industry Classification System) code for 2005 through 2009. The BLS publishes data one year after it's initially collected, so, for example, the May 2010 database reports labor market conditions as of May 2009.

There are 47 occupations that can be reasonably associated with R&D - nearly all of the scientific and engineering occupations. Most people in these occupations are not devoted to R&D because R&D is typically just a few percentage points of an overall organization budget. There are exceptions, such as contract research firms, academic labs, etc., but we're dealing with occupation data across the U.S. economy. Looking at these 47 occupations should provide a decent proxy measure, especially given consideration of: (1)  labor market contraction between 2008 and 2009, and that (2) R&D is a well-known budget casualty in tough times.

Findings:

1. From 2005 through 2009:

a) The 18 science occupations had a +15% aggregate employment gain. Fourteen of 18 occupations had higher employment levels in 2009, vs. 2005.

b) The 29 engineering occupations had a +7% aggregate employment gain. Twenty-three of 29 occupations had higher employment levels in 2009, vs. 2005.

c) All 47 occupations had a +9% aggregate employment gain. Thirty-seven of 47 occupations had higher employment levels in 2009. The overall gain was 164,900 jobs.

2. Between 2008 and 2009:

a) The 18 science occupations had a +1.5% aggregate employment gain. Eleven of 18 occupations had higher employment levels in 2009, vs. 2008.

b) The 29 engineering occupations had a (1%) aggregate employment loss. Sixteen of 29 occupations had higher employment levels in 2009, vs. 2008.

c) All 47 occupations had (0.4%) aggregate employment loss. Twenty-seven of 47 occupations had higher employment levels in 2009, vs. 2008. The net loss was (8,370) jobs.

This group of occupations did better than the labor market as a whole over the 2005-2009 period and especially between 2008 and 2009. BLS data represents the bulk of the US labor market. The NAICS data-sets exclude only farming, domestic help and freelancers.

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Conclusion: while the labor market data is broad-brush, employment trends in occupations associated with R&D run counter to adverse macroeconomic circumstance and suggest that increased R&D off-shoring has not materially affected U.S. R&D-associated employment. Therefore, it's not likely that the off-shoring trend discussed in theAtlantic piece has inflicted meaningful harm on the U.S. economy.

PS - this look at employment trends and pay range patterns in four selected science occupations provides further information:

Density of Earnings

Richard Florida wrote The Creative Class, founded a similarly-named consulting firm and writes a column for theAtlantic.com. Rob Pitingolo is a recent college grad who analyzed the geographic density of bachelor's and graduate degree holders in 52 major cities. Florida recently featured Rob's analysis in a piece titled The Density of Smart People.

Rob's file was made available for download from theAtlantic.com. TheRaven modified Rob's work by adding BLS occupational pay data. The modified file (which was returned to Rob and Richard) demonstrates various degrees of correlation between the geographic concentration of degree holders and higher earnings for almost all occupations that require higher education, and also for many that do not.

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UPDATE: you can download the Excel file used to produce all charts in this post. The file is stored at Docstoc, download it for free here. Zero Excel skills are required. The file is operated only with a mouse. Excel2007 or Excel2010 is required.
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This post looks at ten occupations - five that require higher education and five that do not. Each series is presented in order of most-to-least correlation between degree density and occupation earnings. The BLS tracks 800 occupations, so the 10 presentations in this post are illustrative but not representative. The modified analysis allows user selection of a specific point on the BLS pay range. All presentations here use mean pay data.

Click any image to see it full-size.

A. Higher education required - 1. Chemistry Teachers, post-secondary

A. Higher education required - 2. IT Managers

A. Higher education required - 3. Graphic Designers

A. Higher education required - 4. Civil Engineers

A. Higher education required - 5. Primary Care Physicians

B. Higher education not required - 1. Electricians

B. Higher education not required - 2. Plumbers

B. Higher education not required - 3. Real Estate Agents

B. Higher education not required - 4. Fire Fighters

B. Higher education not required - 5. Letter Carriers

After testing dozens of occupations across their pay range, very few were noted to show minimal or inverse correlation with degree density. Higher concentrations of educated people seem to benefit everyone.

Send flowers

The Bureau of Labor Statistics (BLS) publishes occupation pay and employment data in May of each year. The data is "as-of" May of the preceding year, since the BLS needs a year to vet data, which covers pay range and employment for 800 occupations in 400 metro areas and 291 industries. Occupations are defined by the BLS while industries are defined using the North America Industry Classification System (NAICS). This post covers changes in employment by industry from 2005 to 2009.

TheRaven has summarized occupation-by-industry data into broadly defined industry groups. Groupings attempt to vertically align industries according to basic economic themes. To be clear, the data is authoritative and covers the entire U.S. workforce, except for farming; domestic help and freelancers. Bearing in mind that industries overlap and that no grouping system is perfect, this post uses summarized BLS data to throw light on a few aspects of the US job market not found in typical reportage.  

Click any chart to see it full-size.

Reported: bankruptcies of GM and Chrysler, loss of Big-3 jobs.
Missed: the Big-3 workforce is a very small piece of total auto industry employment. Due to Big-3 outsourcing and inroads by Toyota, Honda, Subaru, Hyundai, et al, component manufacturers employ the bulk of the auto manufacturing workforce and they took the brunt of layoffs. Big-3 employees got the ink but lesser-known, lower-paid people felt the pain.

Confused by the chart? 

Left side - employment by industry, by year.
Center - color codes (chart legend)

  Important: color code sequence matches left & right, reading from top to bottom.

Right side - percentage distribution of employment, by industry, by year.

Reported: individual retailers struggled during the recession, retail layoffs, Las Vegas implosion.
Missed:
1) Florists have fared worse than the gambling industry, with a (25%) employment drop vs. (23%) in gambling.
2) "General merchandise stores" employment is up 29% over 2005, with 2009 gaining 3%.

Reported: oil prices, gas prices, "pain at the pump", "drill baby, drill", coal mine disasters, West Virginia's eternal dependence on coal, rising atmospheric carbon, climate change, oil spills.

Missed: employment in core industries of the carbon-based economy has been slowly falling, even as oil & gas exploration ramped up, and these industries account for less than 2% of the U.S. workforce.

Reported: "bailouts", tea bagger rage at the Federal government, flourishing conspiracy theories and extremist groups, "bloated Federal bureaucracy", slow dispersal of stimulus money.

Missed:
1) State & local governments employ four-times more people than the Federal government.
2) 87% of new government jobs created by the 2009 hiring surge were State & local.
3) all government jobs in 2009 accounted for only a slightly larger share of the U.S. workforce as compared to 2005.

Reported: anything branded "Apple", every Intel press release, lawsuits, video game releases, all "smart" objects, including the stupid ones.

Missed:
1) U.S. electronic manufacturing in long-term decline.
2) Digital economy jobs are up almost 10% over 2005, even after a 2% dip in 2009.
3) Systems design is flourishing.

Reported: newspaper financial trouble, Leno vs. Conan, Lost, 24.

Missed:
1) Old-media industries are in an across-the-board, long-term decline (it's not just newspapers).
2) Industry group share of U.S. workforce fell from 2.2% to 1.9%.
3) Internet-driven creative destruction is hitting in-force (aided by journalist incompetence).

Reported: organic vs. non-organic, Michael Pollan, franchise restaurant financial trouble, farming efficiencies have reduced farm employment to a tiny fraction of the U.S. workforce.

Missed:
1) Industry employment ratios from 3-4 generations ago have reversed. Where once a vast number of farmers produced food that moved through thinly-staffed distribution, a comparatively tiny farming workforce now plugs into a vast distribution network.
2) Where 3-4 generations ago very few people ate out, America now has a huge, sophisticated set of restaurant industries that have significantly displaced meals at home.
3) Almost one-in-eight U.S. workers is connected to food and this industry grouping shows a 3.8% net gain over 2005 employment, after shedding 177,980 jobs in 2009.

Reported: so-called Obama-care, so-called town-hall meetings, health-care share of GDP, hospitals feeling effects of uninsured population

Missed:
1) Hospitals & outpatient centers account for more than one-third of health care employment.
2) While hospital employment grew 7% between 2005 and 2009, ambulatory/outpatient industries grew a (combined) 18%.
3) Home care had the fastest employment growth, increasing by one-quarter between 2005 and 2009.

Reported: collapsing real estate markets, over-building, death of the suburbs, Case-Schiller, home buyer credits, foreclosures, short sales, home builder financial issues, mass layoffs.

Missed:
1) Similar to the auto industry, collapse of home building rippled through many supplier industries.
2) One-in-eight jobs related to home construction was lost with most of the decline in 2009.
3) This industry group dropped from 8.0% to 6.9% of the U.S. workforce.

Reported: "off-shoring", jobs lost to overseas competition, "no job safe".

Missed:
1) Domestic out-sourcing industries are an immense group, accounting for 1-in-9 U.S. jobs.
2) In 2009, this industry group gave up almost all the 1+ million jobs it gained over 2005-2008.
3) Employment services were crushed, losing 1 million jobs between 2007 and 2009.

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A subsequent post may look at more winners & losers among individual industries and occupations. This was the introductory, top-level view.

(All analysis by TheRaven)