Economic Impact: Wine [Not Just] By the Numbers

Apple, maker of iPods, iPads and other iGadgets, recently released data that tried to establish the corporation’s economic impact on the American economy (this in response, I think, to charges that its high-outsource policies mean that its products benefit China and other countries more than its U.S. home market).

The company published the results of a study it commissioned saying that it had “created or supported” 514,000 jobs in the United States. The study is an effort to show that Apple’s benefit to the American job market goes far beyond the 47,000 people it directly employs here.

The number of indirect jobs claimed drew attention from economists.

David Autor, an economics professor at the Massachusetts Institute of Technology, said via e-mail that the “entire business of claiming ‘direct and indirect’ job creation is disreputable” because most of the workers Apple is taking credit for would have been employed elsewhere in the company’s absence.

I tend to agree with Prof. Autor’s comment mainly because I can do the math. If Apple is right, then its small labor force is responsible for an incredible fraction of all U.S. jobs. If we made similar estimates for all other U.S. industries I am confident that the total number of jobs claimed would quickly exceed the total number of jobs … period.

Suspicious Minds

But then I tend to be suspicious of economic impact studies … period … whether they are about the gadget industry or any other industry. And this is due mainly to the incentives that are present. No one ever commissions an impact study unless they have a reason to want to show a large impact (usually it is politics — to prevent a political backlash against Apple’s outsourcing policy, for example, or to encourage provision of “key industry” government benefits).

And I know from personal experience that no one ever takes on an economic impact study without realizing that higher numbers are better for the client. I’m not saying that anything shady takes place. I’m just pointing out the incentives and you know what economists think about the power of incentives!

So (and I’m sure you can see this coming) I’m also suspicious of economic impact studies of the wine industry that are occasionally published. Economic theory says that economic impact (the total value added throughout the supply chain) should be equal to the final sales price of the product. This is such a strong idea in economics that it is stated as an identity rather than an equation or theory.

And the reported economic impact always seem to exceed the final sales by a large margin just like Apple’s jobs study. Yikes. No wonder I have my doubts!

Visible Hands

It is good to be critical in assessing numbers, but I’m afraid my skepticism sometimes goes a bit too far, to the point where I don’t really appreciate how important the wine industry is and how broad its impacts really are. That’s why my travels this year to the Unified Wine & Grape Symposiium and the Washington Association of Wine Grape Growers meetings have been so useful.

It’s not [just] that the presentations have been useful, although they have. It’s really the trade shows that have taken my breath away and provided a needed perspective. I’ve been able to see and meet the people behind the numbers and it has been very helpful.