BUSINESS
06/08/2011 04:20 pm ET | Updated Sep 25, 2011

Apple's IPod: The Case For The Innovation Economy

NEW YORK -- As President Obama continues to battle for his innovation agenda, a new report released this week by the U.S. International Trade Commission offers the White House some concrete ammunition. The report argues that in the context of a globalized economy, innovation industries disproportionately benefit American workers and the U.S. economy. Their primary evidence: Apple's iPod.

Using the iPod as a case study, the authors of the report reached two key conclusions: "Most of the high-paying jobs in the iPod value chain are still in the United States, even though more jobs overall are offshore" and, according to their estimates, "the total wages paid to the U.S. workers are more than double those paid overseas."

As background, the report cites a declining number of stateside production jobs in the computer industry. "As recently as 2000, over one-third of the jobs in the U.S. computer industry were production jobs. By 2007, the number of production workers had fallen to less than one-sixth of total U.S. employment, and total production jobs had been cut in half just since 2002." At the same time, employment for "white collar" workers -- professional and skilled laborers -- only fell by 10 percent from 2002 to 2007.

In the case of Apple, the report estimated that there were "nearly 14,000 U.S. jobs, mostly Apple employees and workers in the retail channel. Outside the United States, there were about 27,000 jobs, mostly in China and elsewhere in the Asia-Pacific."

The authors of the report estimated that Apple workers received "over $1 billion in earnings from iPod-related jobs in 2006. Of this total, nearly $750 million went to U.S. workers and about $320 million, less than half as much, to workers outside the United States."

For Apple, outsourcing manufacturing to other parts of the world -- however cost-effective -- has raised significant concerns. Foxconn, one of the largest manufacturers of Apple products, oversees several factories in China where there have been several high-profile labor cases.

Last summer, several Foxconn workers committed suicide, raising questions about working conditions in company's factories. More recently, the company reportedly asked potential hires to sign pledges that they would not commit suicide and that their families would not seek aggressive settlements in the case of suicide.

Jason Dedrick, an associate professor at the School of Information studies at Syracuse University and one of the authors of the ITC report, told HuffPost that though Foxconn had raised wages by 30 percent in response to worker protest, some manufacturers were moving out of China and into other Asian countries, including Vietnam, where wages remain far lower.

Given China's sizable manufacturing force, Dedrick said that moving to other countries remained difficult. "You can't move half a million [workers] to Vietnam."

But while he expected that any potential increase in wages would be tacked on to a product's market price, "if you look at the labor cost in an iPod, you're talking a few dollars," he said. "It doesn’t change the picture for Apple -- there's not that sensitivity on an iPod regarding pricing."

Companies like Apple largely rely on American workers to fill higher-paying jobs in research and development and engineering -- skilled "innovation" that remains a hallmark of the country’s most successful tech companies. But the report cautions that such white collar jobs remain under threat if globalization leads to a "hollowing out" of the professional class.

As countries like India improve their own tech and education sectors, innovative companies can and surely will develop overseas -- and the likelihood of employing American laborers remains slim, given the cost of labor in the U.S.

Dedrick remained less concerned about the flight of skilled labor overseas. "I think [the U.S.] can keep producing the Apples and Googles of the world," he said. "I'm worried about the people losing jobs in manufacturing these days –- workers across the age spectrum. I'm not so optimistic that we're preparing those people for the jobs of tomorrow."