The information services industry, which has seen a huge spurt in information and communication technology innovation, has likely stagnated in terms of value added to overall GDP. Here's a look at what could be driving this puzzling trend.
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Over the last two decades, an explosion of information and communication technology (ICT) innovation has changed the way we consume goods and services, ranging from maps to entertainment. Despite this, the information services industry1—under which ICT is roughly classified—is still approximately the same proportion of GDP as it was 35 years ago (see figure 1).2 This statistic is likely to sound absurd to business executives and economists in the ICT space, especially at a time when technology companies dominate the valuation of stock indices.
However, closer inspection reveals that although innovation has increased, employment in the industry has declined.3 This is significant since employee compensation accounts for roughly 40 percent of the industry’s value addition to GDP, and employment is key to the creation of this industry’s products.4 The number of employees in the information services industry reached a peak of 3.7 million in 2000–01.5 Between 2000 and 2011, the information industry shed more than 1 million jobs.6 The economic recession of 2001 played a role, but the changing nature of the industry may have been more important in the long run.
An examination of employment trends in the sub-sectors of the information services industry reveals how ICT innovation has affected the nature of employment. For instance, the traditional publishing and broadcasting sectors, which include newspapers, periodicals, books, radio, and television, have witnessed steady declines in employment, while Internet service providers, search portals, data processing, and other information services are on the upswing (see figure 2). From 2001 until 2011, the overall loss in employment outweighed the gains. Since 2011, employment in the information services industry has been on a slight upward trend. But as a percentage of total non-farm employment, it has declined steadily since 2001 (figure 3).7 A relatively steady share of value added to GDP despite a declining share of total employment can imply that value added per employee has increased in the information services industry. Indeed, between 2001 and 2015, value added to GDP by an employee in the industry doubled (by 2.2 times).8 This is reflected in the higher compensation per employee during the same period (an increase of 1.7 times). Though employee numbers in 2015 were fewer than in 2001, higher compensation for greater value-added productivity helped contribute to a relatively unchanged value addition by the information services industry to GDP.
In addition to a falling share of total employment and increased compensation per employee, another factor that explains the information services industry’s relatively unchanged share of value addition to GDP is that the occupations in sub-sectors classified under information services are primarily content production and dissemination roles. Therefore, although the information services industry houses ICT innovations, such as search engines, Internet broadcasting, and wireless telecommunications, most of the industry is not a direct beneficiary of such innovation. Instead, ICT-driven innovation in content production and distribution generates value in other industries across the economy.
The impact of technology on information is revolutionary, but the revolution isn’t necessarily apparent in the information services industry itself.