Just when world economies struggle to create jobs, it came as great news this paper (pdf) from the University of Maryland claiming that Facebook apps created 180K jobs in the US.

This is surprising to me. In a study we carried out for DG INFSO earlier this year, it came out clearly that developers dont make much money out of apps. They say that it’s good to be visible towards venture capital, but in terms of money they’re better off selling their services to companies who want their apps, rather than selling them directly (see for example this article and this).  A recent book by the most respected scholar on the economic impact of ICT (Brynjolfsson) paint a very careful and nuanced, if not negative, picture.

I am not an econometrician but the Maryland study looks weak to me. It is 7 pages long, so that it does not seem a study but some back of the envelop analysis.

The main doubt I have is that it seems to calculate as impact of Facebook app any job created by companies that at any point in time have created an app in Facebook. It states “We excluded 13 firms, such as Blizzard Entertainment, Electronic Arts, and Yahoo from our sample because we could not identify the proportion of Facebook induced full‐time employment.” How could they establish the Facebook-induced full time employment for any other company?

The second doubtful statement says: “The number of employees of each firm would be a function of the number of developers and the number of active users” . This appears to link employees to the number of user, as if developing an app for 15 users requires less manpower than an app for 1M users. Why? The very basic competitive advantage of the web is that is allows to scale at very low costs.

Based on this statement, it formulates that the facebook app economy has generated more than 50K direct jobs.

Another puzzling issue is that it mention passingly that only few apps are for pay, and that you pay with “credits”. But then, these credits data are not used in the estimation.

Another important statement is about the multiplier effect:” For the industry “Internet and other information services,” RIMS states that for the most populous state, California, the creation of one job leads to 3.41 additional jobs in California alone.” This is far more important evidence  that the overall app economy study. There is robust evidence that Internet multiplies jobs more than other industries such as communication.

In summary, my impression is that the paper:

  1. calculates the total number of developers in companies that have ever created a facebook app, and attribute this number exclusively to the app
  2. multiplies this number by some factor related to the number of users in order to deduce employees, to arrive at 50K.
  3. It then multiplies this total by the (somewhat robust) multiplier of 3.41 to obtain 180K.

Steps 1 and 2 are strongly flawed in my opinion.

But I am no econometrician, I don’t understand the formulas. So far I have only seen news article about this study, and no serious academic discussion. It seems to me one of the classical cases that with complex formulas and general equilibrium theory we can justify everything.

So here I call all economists:

– can you point me to serious discussion of this study?

– do the calculation make sense?