Here’s why tech companies hire economists and what these economists contribute to the companies:
For the most part, this is done to get expert research and analysis that can help tech companies make informed decisions for many aspects of how they operate.
Economists can help them understand consumer trends, international relationships, fair practices, how they are affecting the world, and a lot more.
So if you want to learn all about why tech companies hire economists and what these economists contribute exactly, then this is the right article for you.
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Do Tech Companies Hire Economists?
There’s an important question we need to cover before getting into why tech companies hire economists.
Is this really something that happens a lot?
While it depends on the tech company, there is definitely precedence for major tech entities to hire a lot of economists.
According to Harvard Business Review, Amazon has hired 150 PhD economists for various projects.
Google, Facebook, Microsoft, Airbnb, and Uber have all taken similar actions.
So, yes, tech companies are hiring economists.
Why Do Tech Companies Hire Economists? (4 Reasons)
With that established, let’s explore motivations.
Why do companies hire economists?
The short answer is that the tech companies want economists to inform their business practices and strategies.
The longer answer is that economists look at a lot of different, specific areas where their theories can impact business decisions.
I have four major areas of focus listed below for you.
#1 Consumer Trends
One of the more obvious areas of economic study that would appeal to a tech company is that of consumer trends.
In this study, economists try to analyze current consumer trends in order to model and predict future behavior.
Whenever you hear about economists predicting a recession or booming economy, consumer trends play a huge role.
With heavy data analysis, experts can measure how much money consumers are spending and on what kinds of things.
Combine that with additional data, and they can usually predict whether consumer spending will rise or fall over the next few months.
On top of that, good modeling can also predict consumer trends within specific industries.
So, they can tell if car sales (as an example) will go up or down over the next few months.
That can clearly be useful to businesses in any sector, but tech companies are particularly interested for two reasons.
First, tech companies (the major ones at least) have a lot of money, and they use that to invest in a wide range of operations.
Basically, they have their fingers in a lot of pies, and consumer trend analysis can help them figure out where to put extra emphasis or focus from month to month.
The second reason is that tech companies are uniquely able to adapt to large economic trends.
Just think about how rapidly Microsoft was able to distribute Zoom in the last few years.
That’s a clear example that when tech companies have good information, they can make smart moves, get ahead of new trends, and find ways to thrive.
The economists are central to this business strategy.
#2 International Relations
A similar field of study looks at international trade instead of just consumer trends.
By looking at import/export relationships and global supply chains—combined with research on geopolitics—economists can anticipate trade relationships to help tech companies navigate rising challenges.
So, if war breaks out in a part of the world, the economic analysis available to tech companies empowers them with adaptive solutions that can go into effect very quickly.
This applies to any other major disruption that results from the globalized nature of modern economics.
In plainer terms, economists are helping tech companies to come up with action plans that respond to the major changes that inevitably occur all around the world.
By investing in these plans, they can respond to major events better.
#3 Economic Fairness
On a completely different note, many major tech companies are very curious about how their actions impact the global economy, alongside regional economies across the world.
A really good example of this involves Starbucks (which is not exactly a tech company).
In the 90s, Starbucks was enjoying rapid expansion, and they needed to source ridiculous amounts of coffee in order to keep up with their own growth.
As this was happening, Starbucks noticed that some of the cheapest and most available coffee was not sourced sustainably.
Bad farming practices, extremely poor working conditions, and other issues were tied to a lot of potential coffee suppliers.
What Starbucks realized is that depending on these suppliers would ultimately be detrimental in the long run.
Poorly run coffee farms would eventually be unable to keep producing, and that would leave Starbucks high and dry after expanding all over the place.
The solution they came up with (or attached themselves to) was fair trade coffee.
The idea is that they would investigate coffee suppliers and try to only purchase from those who had the most sustainable practices.
By investing in good suppliers early, they could build up a stronger supply chain that wasn’t liable to collapse from a single bad weather season or political upheaval.
Considering that Starbucks has remained everywhere for decades, the approach seems to have worked.
Tech companies hire economists to look at similar factors for their own purposes.
If a major company is too reliant on vulnerable supply chains, it can lead them to ruin.
So, the economists deeply investigate these supply chains and their surrounding conditions.
Tech companies can try to invest in better worker conditions (at least compared to anything else in a given region).
This makes it more likely that the suppliers will stay productive and competitive in the long run.
#4 Nature of the Scale Economy
Do you remember, earlier, when I said that tech companies have a lot of money and invest in a lot of different things?
This leads to the idea of mergers and acquisitions (M&A).
Through these maneuvers, tech companies can buy a lot of startups and small businesses.
This allows the tech companies to increase their sources of revenue and essentially build massive empires.
Look at the sheer range of things owned by Google or Amazon, and you’ll get the idea.
Where do economists come in?
Well, mergers and acquisitions are not simple.
Economists can look at these transactions to inform the tech companies of their value and validity.
On an even larger scale, economists can look at the state of M&A across the whole economy.
This can help them anticipate when more businesses will be looking to sell (often called an exit strategy) or merge.
They can also anticipate the reverse.
This helps tech companies focus M&A investments when they will be most effective for the larger business strategy.
Basically, economists help tech companies make money by advising them on the best times and ways to buy smaller companies.
How Does a Tech Company Impact the World? (2 Ways)
This is a question tech companies might ask themselves, and they’ll hire economists to come up with an answer, and there are a lot of ways to look at it.
Let’s consider just one company: Google.
Google’s search makes it much easier for people around the world to access reliable information.
So, an economist might try to estimate the real economic or global value of this feature.
At the same time, Google also makes it easier to access unreliable information.
This could be considered a negative impact, and it should also be estimated.
Every tech product has pros and cons, and major tech companies are seriously interested in how their products and services really change the world, for better and worse.
This might be partially altruistic.
Ultimately, tech companies are run by people, and most people like to believe that they’re doing good things.
There are also economic incentives for these investigations, and it goes back to sustainability.
If Google search is ultimately going to destroy society and ruin every economy (which is hopefully a hyperbolic example), then eventually, Google goes down with the ship, so to speak.
It’s in Google’s own best interest to recognize such a trend early and alter course, for its own sake.
#1 Management Practices and Decisions
Additionally, tech companies hire economists to look at business models, practices, and decisions.
This is exactly what you would expect.
The economists analyze and review the tech companies as a whole.
They review policies, strategies, and all of that stuff.
Based on what the economists find, they can then make recommendations to the leaders in the tech company.
Things that work can be bolstered while things that don’t work can be reinvisioned.
The point is to get a large-scale, economical look at how the company is run and is performing.
#2 Data Asset Management
One of the final areas that tech economists might study is data asset management.
Asset management is already a large portion of economics, and it’s reasonably well understood.
This is the idea of using assets in ways that are efficient and make money.
So, if a company owns empty lots, asset management analysis would look at the cost and profit potential of building something on those lots.
By figuring out what would be the most reasonable thing to build, the company can get the most value from the asset (just plain land in this case).
Data assets are a bit different.
This is data that is owned by a tech company.
So, when you agree to the terms and conditions for whatever tech account you just opened, you’re giving them the right to do things with the data you create as a user.
The exact nature of this data varies wildly, and that’s best left for another day.
The point right now is that tech companies have access to (and potentially ownership of) a lot of this data.
How should it be used?
Economists on tech payrolls investigate this from a purely financial and economic perspective.
They figure out the best ways for tech companies to make use of their data assets (which includes things other than user data, by the way).
Since data assets are still a newish idea, tech companies are interested in finding professional economists who can really flesh out working theories to inform this aspect of asset management.
If data asset management can catch up to general asset management, then tech companies will find that they are sitting on figurative gold mines.
What Specifically Do the Economists Do? (2 Roles)
So, those are the specific areas that tech-hired economists are typically researching, but what do the economists actually do?
How do they go about their research, and what does that look like?
What does it mean for tech companies and why they hire economists at all?
#1 Empirical Relationship Studies
A primary tool available to economists is the empirical relationship study.
At its core, it’s a pretty easy idea.
Economists look for measurable ways to compare economic relationships.
In practice, it can get quite convoluted, and sometimes very interesting.
Just to give you a few ideas, empirical relationship studies can look at anything from how Google ads help local bookstores sell books to the disparate outcomes of housing equity along racial lines.
If that second one sounds a little confusing, it’s because it fits well within the convoluted range of empirical relationship studies.
A cleaner example can really help you see what’s happening.
A specific study a tech economist might run would investigate whether or not eBay should advertise on Google.
At first glance, it might seem like a good idea.
A ton of people use Google, so it’s a natural place to advertise, and a lot of people will see the ad.
But, eBay isn’t some mom and pop store.
It’s one of the most recognized online retailers in the world.
If eBay advertises on Google, are they really generating more traffic, or are they just paying Google to bring customers that would naturally end up on eBay anyway?
That’s actually a tough question to answer, and it’s why you would want professional economists to take a deep look at it.
#2 Market and Incentive Analysis
Another tool in the economist bag is the analysis of markets and incentives.
Once again, this can appear simple and become very complicated very quickly.
The general idea is to figure out what convinces people to spend money on certain things.
For some things, it’s about markets and needs.
If you drive a car to work, you need gas (or electricity, or whatever powers your car).
You don’t need any external incentive to buy gas.
It’s about filling the tank so you can travel as needed.
Other things you buy aren’t based so much on need.
Smartwatches are a great example.
A lot of people have them, but it’s hard to argue an intrinsic need for something like that.
So, an economist would look at markets and incentives to see how they impact smartwatch sales.
As an example, they might specifically research the relationship between consumer search and digital advertising.
So, if someone is looking up a bunch of smartwatches, tech companies will probably start sending them ads for smartwatches.
How likely is a consumer to ultimately purchase from an ad that includes a special discount?
That’s a very specific question, but it helps economists understand these greater relationships.
Put enough studies together, and you know a lot about how consumers behave in general, and that can really help a company’s business strategy.