“Information Activities” account for 70
percent of the U.S. Economy!
Do you believe it???
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Two “Recent” Studies
• U.S. Census Bureau (1997): Information Sector
accounts for 4.22 percent of U.S. GNP
• Michael Bergman (2005): Information contents of U.S.
Enterprise documents represents about a third of GDP
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Measuring the US Information Economy:
An Exercise in National Income Accounting*
Hiranya K Nath
Sam Houston State University
October 13, 2005
* Based on Apte, U. and H. Nath, 2004, Size, Structure and Growth
of the US Information Economy, BIT Working Paper, UCLA
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Two major attempts to conceptualize and
measure the information economy
• Fritz Machlup (1962): to conceptualize the ‘knowledge
industry’ and to present a comprehensive statistical
profile of this industry
• Marc U Porat (1977): to measure the size and structure
of the information economy using the national income
accounting (NIA) framework
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Differences between Machlup and Porat
• Machlup’s approach requires an overhaul of the
conventional NIA framework thus making it hard to place
information economy in an overall macro context while
Porat’s approach is relatively simple and easy to
implement
• Porat distinguishes between “primary” and “secondary”
information sector while Machlup does not make such
distinction
• Machlup uses “final demand” whereas Porat uses “value
added” to measure contributions of information economy
to GNP
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Porat’s Concepts and Definitions
• Information: “data that have been organized and
communicated”
• Operational definition of information activities: all
workers, machinery, goods and services that are
employed in processing, manipulating and transmitting
information
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Organization of the Economy
Economy
is made up of
two inseparable domains
Transformation of matter and
energy from one form into another
Primary Information Sector
Transformation of information
from one pattern into another
=
Information Economy
Secondary Information Sector
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Primary Information Sector (PRIS)
goods and services which intrinsically convey information or are
directly used in producing, processing or distributing information
knowledge production and invention
information distribution and communication
risk management
search and coordination
information processing and transmission services
information goods
selected government activities
support facilities
wholesale and retail trade in information goods and services8
Secondary Information Sector (SIS)
Information services produced for
internal consumption by government
and non-information firms
Public bureaucracy: planning,
coordinating, deciding, monitoring,
regulating and evaluating activities
Exception 1:
Printing, law and accounting in PRIS
Exception 2:
Education and postal service in PRIS
Private bureaucracy: informational cost
of providing a non-information good
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Table 1
Value added contribution of Primary and Secondary Information
Sector to GNP in 1967, 1992 and 1997
(Values in millions of current dollars)
Sector
1967
1992
1997
Primary
200,025
(25.1%)
2,055,950
(33.0%)
2,940,121
(35.2%)
Secondary
168,073
(21.1%)
1,427,119
(22.9%)
2,317,419
(27.8%)
Information
(Total valueadded)
368,098
(46.3%)
3,483,069
(55.9%)
5,257,540
(63.0%)
Non-Information
(Total valueadded)
427,290
(53.7%)
2,750,836
(44.1%)
3,088,106
(37.0%)
Total GNP
795,388
(100.0%)
6,233,905
(100.0%)
8,345,646
(100.0%)
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10
0
20
1992
1997
60
40
30
1967
Government 1992
1997
50
1967
70
Service
1967
Manufacturing 1992
1997
1967
Construction 1992
1997
1967
Mining 1992
1997
Agriculture, 1967
Forestry and 1992
1997
Fishing
Percentage Share
Shares of Broad Sectors in U.S.
Information Economy
80
Sectors
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Business
services
1997
1992
1967
1997
1992
1967
1997
1992
1967
1997
1992
20
15
10
5
0
1967
Percentage shares
Services with Largest Shares in the U.S.
Information Economy
Finance and Medical,
Wholesale
insurance eduactional and retail
and nontrade
profit
Services
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Measuring Primary Information Sector
• Use Benchmark Input-Output Tables to identify industries
belonging to PRIS at a disaggregate level (6-digit/9-digit level
of I-O classification)
• Take the value added figures at those disaggregate levels
• Aggregate over 6/9-digit industries to obtain value-added at
corresponding 2-digit level
• 2-digit level industries, such as communications, office,
computing and accounting machines, radio, television and
communication equipment, and electronic equipment, are
identified as belonging entirely to the PRIS.
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Measuring Secondary Information Sector
To measure the non-marketed services of the SIS, Porat
uses a rather restrictive definition of value added that
includes
– (1) employee compensation of information workers
– (2) part of proprietors’ income and corporate profits
earned for performing informational tasks, and
– (3) capital consumption allowances on information
machines
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(1) Employee Compensation of Information
Workers
Wages and
Salaries
Occupations
Occupations
Occupations
No. of
employees
Industries
Industries
Industries
Compensation
of Information
workers
Detailed Occupation-Industry matrices of ‘No. of
employees’ and ‘Wages and salaries’ are used to
calculate employee compensation
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(2)Proprietors’ income and corporate profits,
and (3) capital consumption allowance
• Impute the value of proprietors’ income earned for
performing informational tasks by matching them with
information workers in similar occupations and using
their salaries as the value of compensation for
proprietors for informational activities
• Use a matrix that shows the detailed capital flows of all
industries to calculate depreciation allowances on
information capital goods
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Problems
• From the published sources it is difficult to obtain data at
disaggregate levels
• No. of workers and wages/salaries by occupational categories
are available for the survey years which may not be the same
as those of the I-O tables
• Calculating SIS value added at aggregate level may lead to
double counting as some of the disaggregate industries within
a particular aggregate industry may have been entirely
counted in PRIS
• Use of the new NAICS (North America Industrial Classification
System) has raised additional issues when you try to make
the values comparable to earlier years.
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How do we handle these problems?
• See Apte, Uday M. and Hiranya K Nath, 2004, “SIZE,
STRUCTURE AND GROWTH OF THE US
INFORMATION ECONOMY” BIT Working Paper
• A Technical Appendix to the paper and detailed
Background Tables can be obtained from Hiranya K Nath
(eco_hkn@shsu.edu)
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Critiques of Porat’s Method
• Although the decomposition of the information economy into PRIS
and SIS is conceptually appealing, the methods of measuring them
may lead to inconsistency. Furthermore, this method of aggregation
may lead to an overstatement of the size of the information economy
as it fails to exclude the non-information activities in the PRIS.
• Every occupation has an informational component. Thus, the
identification scheme used by Porat is arbitrary and ad-hoc.
Moreover, that new information occupations have been continually
emerging the list of information occupations needs to be updated
regularly.
• Porat’s information economy includes very diverse activities whose
growth cannot be explained by unitary theory. Also, Porat's concept
of information economy does not provide a theory to explain the
development of advanced capitalist economy.
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Suggestions for Improvements
• A unified approach to both PRIS and SIS: In order to exclude the
non-information activities in the PRIS, we would propose that the
employee compensation of information workers, part of proprietors’
income earned for performing informational tasks, and capital
consumption allowances on information machines in the PRIS be
calculated to measure their contribution to value added
• Now that many of the information-based services are outsourced to
contractors or service industries a substantial part of the private
bureaucracy enters into the market. It is thus important to reexamine
the secondary information sector.
• The growth of new information-based industries should be studied
separately in all their varied dimensions. Furthermore, their linkages
with other sectors of the economy should be examined using the
input-output matrix. See Apte and Nath (JSEC, 2004) for example!
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