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

by Mercedes Delgado and Karen G. Mills

Overview — This paper provides a novel industry categorization that quantifies the supply chain economy in the United States. Suppliers of goods, and particularly services, to business and government are a distinct and large sector, and play an important role in national innovation and economic performance.

Author Abstract

An active debate has centered on the importance of manufacturing for driving innovation in the US 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 while 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.