Newsflash: Intellectual Property Is Vital to a Significant Part of the U.S. Economy

Nigel Cory October 11, 2016
October 11, 2016

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Going back to the Founding Fathers and the writing of the U.S. Constitution (with the intellectual property clause), intellectual property (IP) has always featured prominently in the U.S. economy. Yet its importance is too often overlooked and undervalued. The U.S. Department of Commerce’s recent report—Intellectual Property and the U.S. Economy: 2016 Update—adds to a growing body of research that helps provide a clearer picture. As the basis of economic competition becomes more knowledge-based, policymakers need more empirical data to help make better economic and trade policy, especially in the face of those who would argue for weaker intellectual property protections.

The report identifies 81 sectors (out of a total of 313) as intensive users of patents, trademarks, and copyrights (the principal ways firms establish ownership rights to their ideas, creations, inventions, and brands). The report defines intensive users as sectors where the ratio of intellectual property relative to industry employment is above the 2009-2013 average. For example, the most intensive user of patents is the computer equipment sector, and it has a patent intensity of 658 patents per 1,000 workers—well above the average of 46 patents per 1,000 workers for the economy as a whole.

Opponents of intellectual property do their best to smear it as a tool of content creators such as “Hollywood” (as if their work is not worthy of protection). But the truth is that intellectual property is used by sectors across the economy, including in manufacturing for industrial machinery, chemicals, medical equipment, as well as for financial, business, and technical services.

The report’s key takeaway is clear: Intellectual property-intensive industries are a major, integral, and growing part of the U.S. economy. These sectors directly accounted for 27.9 million jobs in 2014 (up 800,000 from 2010) and accounted for 29.8 percent of all jobs in the United States. Of all of those jobs, copyright-intensive industries were home to 5.6 million jobs (compared to 5.1 million in 2010), and patent-intensive industries were home to 3.9 million jobs (compared to 3.8 million in 2010).

Not only do these sectors provide a lot of jobs, they’re better paying jobs. Workers in intellectual property-intensive sectors are earning an ever-growing wage premium over workers in other sectors. In 2014, workers in IP-intensive industries earned an average weekly wage of $1,312, 46 percent higher than the $896 average weekly wage in non-IP-intensive industries in the private sector. This wage premium continues to grow—up 24 percentage points since 1990.

Since the Department of Commerce’s first report on this topic released in 2010, there has been similar research in Europe. It has come to the same conclusion: Intellectual property plays a significant role in the European economy. Using a similar methodology, a European Union report from 2013 finds that IP-intensive industries generated €4.7 trillion worth of economic activity, which amounted to almost 39 percent of the European Union’s GDP. These intellectual property-intensive industries directly employed 56.5 million Europeans, accounting for almost 26 percent of all jobs. A separate European Union study used firm-level data from over 130,000 companies to find that firms that owned intellectual property earned 29 percent more in revenue per employee and paid 20 percent more in wages compared to the average. This difference is even more significant for small and medium enterprises that own IP; these firms earn 32 percent more in revenue per employee compared to their counterparts with no IP.

The data provided by the Department of Commerce’s report can help make sure that intellectual property is not overlooked or mischaracterized as something that is only of interest to certain sectors or a small part of the U.S. economy. On the international front, the U.S. Bureau of Economic Analysis is building on this through its ongoing efforts to better capture intellectual property’s role in international trade (as a part of international trade in services). The logical next step, as the Department of Commerce points out, is to do further firm-level research on the role of intellectual property and to find ways to identify causal links between intellectual property and economic outcomes in the U.S. economy. Collecting and reporting intellectual property data for sectors at the state level would be another valuable area to add. The ultimate aim would be set up mechanisms that would capture, measure, analyze, and report intellectual property statistics at the state-, national-, industry- and firm-level on a regular basis to provide a better idea as to the state of intellectual property in the U.S. economy.

The shrill debate over the intellectual property chapter in the Trans-Pacific Partnership trade agreement shows that there are many opponents out there who remain fundamentally opposed to America’s approach to intellectual property, despite its clear success in spurring innovation and economic growth. As ITIF recently wrote, these criticisms do not stand up to closer scrutiny. Many of the opponents are ideologically opposed to intellectual property, especially the extension of commonsense rules that exist in the offline world to the online one. Ultimately, the figures in this report should make it clear to policymakers that the impact of weaker intellectual property in the United States and overseas, such as those advocated by the Electronic Frontier Foundation and others, would have negative economic consequences on a wide number of sectors and workers in the U.S. economy.