Did Apple really create half a million jobs? [Update]

Flickr user Karl Baron

COMMENTARY Apple (AAPL) has been under a PR microscope over labor issues in its outsourced factories, the whopping profits it pulls in, and not bringing its manufacturing back to the U.S. (As I've pointed out, Apple could add $20 in labor costs for each and every device it made during the quarter that ended December 2011 and still have handily beaten analyst expectations.)

It seems as though the pressure has become too much for the normally secretive company. Apple finally listed its suppliers and brought in a third party to audit the Foxconn factories in China that make many of its goods. That alone seemed odd, as Apple for years has brought in auditors to look at the labor and management practices of its contractors and subcontractors. What makes this round special? In addition, Apple just promoted the number of jobs it claims to have created or supported in the U.S. Some commentators are delighted and say this refutes criticism. Unfortunately, the time sheets don't add up.

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Apple's first claim is that it supports 304,000 jobs in the U.S., including 47,000 jobs at Apple and 257,000 jobs at other companies that provide development and manufacturing of components, materials, and equipment; professional, scientific, and technical services; consumer sales; transportation; business sales; and healthcare.

A consulting firm, Analysis Group, performed the study, applying the total that Apple spent on goods and services in the U.S. in 2011 and then using what are called Type 1 multipliers from the U.S. Bureau of Economic Analysis to determine the number of jobs. But as researchers at the BEA note in a paper titled "Input-Output Models for Impact Analysis: Suggestions for Practitioners Using RIMS II Multipliers," such models have assumptions, including that "an industry must double its inputs to double its output without substitution."

Pretty models

However, in consumer electronics, costs are always driven down, with changes in design seeking greater efficiency in use of new components, manufacturing processes, services, and so on. Companies get more efficient in how they produce goods. As the paper notes:

I-O models typically assume that changes in output will result in a proportional change in jobs based on the average production patterns for the industries in a local economy. However, if an industry can increase its output by extending mainly the number of hours that existing employees work, then the results estimated with RIMS II multipliers will overstate the actual increase in local employment.
Multipliers are used to compare two points in time and the difference in output between those times to address additional jobs created by the increase. The firm that Apple retained seems to have looked at an all-or-nothing model, treating the first point as Apple virtually not existing and then applying all the sales to job creation. Many of the jobs, particularly at Apple, will be overhead and not scale up specifically because of an increase in production. In other words, it's a fuzzy use of the multipliers and likely results in a significant overstatement of Apple's job creation.

Furthermore, other industries can become more efficient and use fewer people to do the same amount of work. Look at this statement from Apple:

For example, this figure also includes workers in Texas who manufacture processors for iOS products, Corning employees in Kentucky and New York who create the majority of the glass for iPhone, and FedEx and UPS employees.
How did those named firms do in U.S. job creation? Let's take a look.

Employment envelope, please

According to its annual reports, Corning (GLW) added 1,300 employees, or almost 13 percent, between 2009 and 2011. Some good number are probably due to its Gorilla Glass manufacturing, which is used in iPhones and iPads. But according to Corning, 600 product models and 30 brands use the material. Of course Apple would be a significant customer, but hardly the single driving factor. That's why Apple stressed the word "supported."

FedEx (FDX) had "more than 280,000" employees in its fiscal year 2009 (ending May 31) and more than 290,000 in fiscal 2011. Those numbers are global and include an acquisition in India large enough to be mentioned in the annual report.

Unlike FedEx, UPS (UPS) breaks out its U.S. employment figures. The company went from 340,000 in 2009 to 323,000 in 2011, a drop of 5 percent over the last two years. Trying to tie one company's activity with an increase in employment at another is next to impossible, so the extended claim is questionable.

App economy

Apple also discusses the so-called app economy over the last four years:

  • 210,000 iOS app economy jobs in the U.S.

  • 248,000 registered iOS developers in the U.S.

  • 5000+ iOS developer jobs available now on job search aggregator Indeed.com

  • $4 billion paid to Apple developers from App Store sales
Divide the $4 billion payout by the 248,000 developers over four years and you get...$4032.26 per developer per year. Sure, some companies make a lot of money from developing apps. But for most, these aren't jobs, they're hobbies that pay a few hundred dollars a month.

As for the overall app economy jobs figure, that's based on a TechNet study that examined the Conference Board HWOL database, a compilation of online help-wanted ads. The study looked for keywords and terms -- including Android, app, BlackBerry, Facebook API, iOS, iPhone, Windows Mobile, and Windows Phone -- to identify potential jobs, applied an ad-to-employment ratio, and looked at an additional job creation multiplier, because these people will buy goods and services.

However, these people wouldn't suddenly disappear from the face of the earth if they were working in areas other than apps, so attributing their purchases to an app economy is seriously misleading. Additionally, keywords are about skills, not necessarily job titles. IT support personnel might be required to have experience with Android and iOS without specifically working in the apps area. Developers might focus on other areas if they weren't developing apps. In other words, the study attributes incremental jobs to apps, and some probably are. However, many are more likely in a zero-sum game, with companies adding jobs here, taking them away there.

Apple's own hires

How about Apple's own hires? It states that the number of jobs in the U.S. went from fewer than 10,000 in 2002 to more than 47,000 today. According to its fiscal year 2002 annual report, it had 10,211 total employees, 2,030 temporary employees and contractors, and net sales of $5.7 billion. In fiscal 2011, it had 60,400 employees, 2,900 full-time equivalent temporary employees and contractors, and net sales of $108.2 billion. (Let's not bother with the retail and technical support employees it separately mentions because they'd already be part of this overall number and don't need to be considered twice.)

Credit the company with all jobs globally. From 2002 through 2011, it went from 12,241 to 63,300, an increase of 51,059 employees. But divide that into the change in net revenue of $102.5 billion and you've got $2 million in new revenue on the average to add a new job. That's one highly-leveraged set of employees.

As a comparison, at the end of 2004, Google (GOOG) had 3,021 employees and $3.2 billion in revenue. By the end of 2011, there were 32,467 employees and $37.9 billion in revenue. That's a new job for every $1.2 million in additional revenue. Or look at Facebook: 2,127 employees and $2 billion in revenue during 2010 and 3,200 employees and $3.7 billion in 2011. That's $1.6 million in additional revenue per new job.

Overall, has Apple added jobs to the economy, both in the U.S. and abroad? Absolutely. But at probably nowhere near the rate that it tries to imply and at a pace significantly slower than some other big tech companies.

[Update: CBS MoneyWatch emailed Apple's PR department on 3/4/2012 seeking an interview or statement. As of 6:45 PM eastern on 3/5/2012, there was no response. If we do hear from Apple, we'll update the post accordingly.]

Image courtesy of Flickr user Karl Baron.

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    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.