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A New Categorization of the U.S. Economy: The Role of Supply Chain Industries in Innovation and Economic Performance

44 Pages Posted: 10 Oct 2017 Last revised: 14 Oct 2017

Mercedes Delgado

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Karen Mills

Harvard Business School

Date Written: October 9, 2017

Abstract

An active debate has centered on the importance of manufacturing for driving innovation in the U.S. economy. This paper proposes an alternative framework that focuses on the role of suppliers of goods and services (the “supply chain economy”) in national performance. Using the 2002 Benchmark Input- Output Accounts, we introduce a new industry categorization that separates supply chain (SC) industries (i.e., those that sell their goods and services primarily to businesses or government) from business-to-consumer (B2C) industries (i.e., those that sell primarily to consumers). We find that the supply chain economy is a distinct and large segment of the economy, with a mix of manufacturers and more importantly service providers. Supply chain industries, especially “traded” services (i.e., those that are sold across regions, like software), have higher average wages than B2C industries. The supply chain economy also has a much larger intensity of STEM jobs and generates the majority of patents. While STEM jobs are most prevalent among suppliers of traded services, patents are concentrated primarily in manufacturing suppliers. We also find that employment in the economy has been evolving from manufacturing into different types of services for the period under examination (1998–2013): SC traded services (with the highest STEM intensity and wages) experienced high growth in employment and wages; and B2C local services (with the lowest STEM intensity and wages) experienced high growth in employment but a decline in wages. Overall, our findings suggest that the subcategory of supply chain traded services is particularly important to innovation and the economy.

Keywords: supply chain industries; business-to-consumer industries; technology intensity; patenting; economic growth

JEL Classification: O14, O30, O40, O51, J20, J30, C67

Suggested Citation

Delgado, Mercedes and Mills, Karen, A New Categorization of the U.S. Economy: The Role of Supply Chain Industries in Innovation and Economic Performance (October 9, 2017). MIT Sloan Research Paper No. 5241-16. Available at SSRN: https://ssrn.com/abstract=3050296

Mercedes Delgado (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Ave. E62-663
Cambridge, MA 02142
United States

HOME PAGE: http://mitsloan.mit.edu/faculty-and-research/faculty-directory/detail/?id=54139

Karen Mills

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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