November employment

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As no doubt you have already heard from numerous sources, the BLS reported this morning that employment rose by 321,000 in November with the unemployment rate staying at 5.8%. The increase was well over the 243,000 that economists had forecast. According to BLS, "Job gains were widespread, led by growth in professional and business services, retail trade, health care, and manufacturing."

The number of involuntary underemployed (part time for economic reasons) continued to decline ever so slightly in November. The decline was due completely to a drop in those part time because of slack work. The number of those who could only find part time work remained the same as last month.

As I've noted before, the total involuntary underemployment remains well above pre-Great Recession levels. This high level of involuntary underemployed constitutes a waste of human capital. Last month, the WSJ looked more closely at the pat-time workers (Why Are So Many Workers Still Part Time? Seven Charts). The story points out that the improvement in involuntary underemployed is concentrated in manufacturing and construction. There has been little decline in involuntary underemployment in the retail/whole trade and leisure/hospitality sectors. While these sectors are traditionally heavily part-time, it appears that we may have reached a "new normal" in these industries. The Great Recession seems to have created a structural shift in part time work. The story dismisses one common explanation for this, "empirical data doesn't yet show a big increase in part-time work that could be attributed to the health care law." But the story give no other explanation. Clearly more work is needed to address this problem.

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October trade in intangibles

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News this morning from BEA is that the U.S. trade deficit dropped by a mere $0.2 billion in October to $43.4 billion. Exports grew slightly faster than imports: exports up by $2.3 billion with imports up $2.1 billion. However, the deficit in petroleum goods grew by $1.2 billion due to a drop in exports; petroleum goods imports actually declined. Economists had been expecting a drop in the overall deficit to $41.2 billion.

The surplus in pure intangibles grew by $183 million in October to a level of $14.2 billion as exports generally grew faster than imports. The surpluses in maintenance & repair services and financial services improved while the deficit in insurance services increased. The surplus in business services again declined, for the 9th month in a row. Exports of business services continue to grow but imports of those services grew even faster. Net revenues from the use of intellectual property increased as revenues from foreign sources (exports) grew faster than charges for the use of intellectual property paid out to foreign sources (imports).

Our Advanced Technology deficit also improved slightly in October, dropping to $9.2 billion from $10.5 billion in September. Exports of aerospace technology and information and communications technology were up but imports of information and communications technology also increased.

Advanced Technology goods also represent trade in intangibles. These goods are competitive because their value is based on knowledge and other intangibles. While not a perfect measure, Advanced Technology goods serve as an approximation of our trade in embedded intangibles. Adding the pure and embedded intangibles shows an overall surplus of $5.1 billion - up from $3.6 billion in September.

Today's BEA release also includes revised data for April through September. As a result, the intangibles surplus was increased by over $1 billion for those 6 months. This change was due to an upward revision of exports of intangibles of $2.7 billion and a upward revision of imports of $1.6 billion. These revisions remind us of how tenuous our measurements are of intangibles and the need to continue to improve both our data collection and measurement frameworks in this new intangible economy.

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Note: I am now reporting the trade data using the new BEA classifications for services trade, which breaks services into more categories. In the past, the intangible trade data was the sum of Royalties and License Fees and Other Private Services. Under the new classification system, intangibles trade data is the sum of the following items: maintenance and repair services n.i.e. (not included elsewhere); insurance services; financial services; charges for the use of intellectual property n.i.e.; telecommunications, computer, and information services; other business services.


Charges for the use of intellectual property n.i.e. is simply a renaming of Royalties and License Fees. This includes transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights.


Maintenance and repair services n.i.e., financial services, and insurance services, were previously included in Other Private Services. Telecommunications, computer, and information services is a combination of those two items (telecommunications and computer & information services) that were also previously included in Other Private Services. Three categories previously in Other Private Services -- education-related and health-related travel and the expenditures on goods and services by border, seasonal, and other short-term workers -- were removed and reclassified to travel. The new category of other business services is a continuation of the older category Other Private Services with those components removed.


Thus, other business services includes categories such as advertising services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; and industrial engineering services. It also includes personal, cultural, and recreational services which includes fees related to the production of motion pictures, radio and television programs, and musical recordings; payments or receipts for renting audiovisual and related products, downloaded recordings and manuscripts; telemedicine; online education; and receipts or payments for cultural, sporting, and performing arts activities.


For more information on the changes, see the March 2014 Survey of Current Business article, "The Comprehensive Restructuring of the International Economic Accounts: Changes in Definitions, Classifications, and Presentations."



New study on patent licensing and transaction costs

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Bob Litan and Hal Singer have just released a new report Unlocking Patents: Costs of Failure, Benefits of Success. Written as part of their economic consulting firm Economists Incorporated, the report looks at the barriers to successful commercialization through patent licensing.

Their conclusion is that a great many patents are never licensed due to transaction costs:

Unfortunately, these innovations are impeded rather than facilitated by the current patent system. The reason is that the current patent licensing system does not scale--that is, the transactions costs associated with consummating the tenth (or hundredth) licensing deal is no less than the transactions costs associated with consummating the first. (emphasis in original).

Now, I'm sure that there are other reasons that some patents are not licensed. Litan and Singer mention litigation risk as another issue. But, the technology may be ahead of its time. It may need further development. There may be additional technologies needed before the technology is commercially viable. There may be changes in the market and/or consumer demand that have to occur before the technology is commercially viable. Or the patent may just cover something that sounded like a good idea but is a dud.

But transaction costs are a factor -- and a factor that can be dealt with. In that respect, the Litan & Singer echoes the conclusions of an Athena Alliance report from 2008, Intangible Asset Monetization: The Promise and the Reality:

The purpose of monetization is to raise funds, either through revenues in the case of sale and licensing or through investment capital in the case of collateralization and securitization. To the extent that funds are available through other mechanisms at lower costs, the incentive for monetization disappears. Thus, the higher the transaction costs, the less the incentive. This is true in all forms of monetization. If the cost of patenting a technology and/or the costs of licensing that knowledge is high, there is less reason to do it.

This is especially true for securitization where the deals are essentially unique, one-off transactions.

Litan and Singer point to a number of ways to address the issue. They conclude that emerging private sector solutions (such as U.S. Patent Utility, RPX Corporation, and LOTNET) can help overcome the problem without needed changes in law or regulations. While I support these efforts to standardize licensing, I do believe that the wider issue of collateralization and securitization will need broader efforts including changes in government regulations. For example, bank regulators need to understand and standardize how patents are treated for purposes of loan collateral. (See our papers "Intangible Assets: Innovative Financing for Innovation", and "Building a capital market for intangibles").

Litan and Singer's report has highlighted an important issue in the innovation system. I hope the combination of public and private sector efforts can successful address the problem.


October employment

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Good news continues on employment as the BLS reports that employment rose by 214,000 in October with a down tick in the unemployment rate to 5.8%. The increase was not quite as large as the 235,000 that economists had forecast but the unemployment rate was in line with expectations. The number of involuntary underemployed (part time for economic reasons) continued to decline in October as the number of those who could only find part time work dropped. Slack work actually increased slightly. However, the total involuntary underemployment remains well above pre-Great Recession levels. As I've noted before, the high level of involuntary underemployed constitutes a waste of human capital.

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September trade in intangibles

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This morning's September trade deficit data from BEA is not so good. The overall deficit rose by $3 billion to $43.0 billion. This was due almost completely to a $3 billion decline in exports. Import were basically unchanged - up by a slight $0.1 billion - even with a surge in consumer electronics imports. The deficit in petroleum goods was up only slightly. The drop was far greater than economists' expectation of a $40.2 billion deficit. The slowdown in exports is thought to reflect the slower economic grow in our trading partners in Europe and Japan. It will also likely cause a downward revision in 3Q GDP estimates due out later this month.

The surplus in pure intangibles was virtually unchanged in September at $14 billion. The only real change from August was a decline in exports of maintenance & repair services which was offset by very slight improvements in other sectors.

The really bad news was a huge jump in our Advanced Technology deficit, which hit almost $10.5 billion in September. That was an increase in $6 billion over August. Imports of information and communications technology dropped surged by nearly $4 billion. Small drops in exports and increases in imports in other sectors accounted for the rest of the decline.

Advanced Technology goods also represent trade in intangibles. These goods are competitive because their value is based on knowledge and other intangibles. While not a perfect measure, Advanced Technology goods serve as an approximation of our trade in embedded intangibles. Adding the pure and embedded intangibles shows an overall surplus of only $3.5 billion - down from $9.5 billion in August due to the large deficit in Advanced Technology goods.

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    Note: the views expressed here are solely those of the author and do not necessarily represent those of Athena Alliance.


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