The economics of the iPod

The economics of the iPod

Like most other digital devices, the iPod was designed in the US, but is put together in factories across Asia. What does this tell us about globalization?

A new study on the economics underlying this iconic device has attracted a lot of attention in the US, because the study shows that, by 2006, the iPod value chain created twice as many jobs in nations other than the US. The current high unemployment rate in the US has led to fresh debate on the winners and losers of globalization. Critics have latched on to the fact that the iPod success story has created profits for shareholders of Apple Computers while exporting jobs to cheaper locations, to argue that the odds are stacked up against workers.

The reality is more complex. What economists Greg Linden, Jason Dedrick and Kenneth Kraemer also show is that while the 13,920 Americans involved in the iPod process earned nearly $750 million, the 27,250 non-Americans got $320 million. So the average American cog in the Apple production machine earned around four times his international peer.

This is not unexpected, because the economics of international trade tells us that factors of production that are in relative abundance in each country benefit from trade across borders—in this case, capital and high-skill labour in the US and low-skill labour in Asia.

In the future, Asian countries will undoubtedly advance by doing some of the more valuable work such as product design and software products. But, for now, the big opportunity is still in creating manufacturing jobs.

One of the great achievements of the globalization era is the intricate production chains that now span the globe, with product design done in one country, components made in several others, and the final gizmo assembled in yet another country. Many countries in Asia have created millions of job opportunities for their citizens by successfully plugging into these global chains.

The iPod is an example of how globalization benefits low-skilled workers in places such as India. Unfortunately, we have lagged in the global manufacturing game, denying millions a good path out of work on the farm and in the unorganized sector.

Why is India absent from so many global supply chains? Tell us at