The Supply Chain Economy: A New Framework for Understanding Innovation and Services

by Mercedes Delgado and Karen G. Mills

Overview — This study shows that a large and dynamic supply chain economy plays a crucial role in innovation and in the creation of well-paid jobs. Traded service suppliers are particularly important. Policies that help suppliers access skilled labor, buyers, and capital could be beneficial for fostering innovation and economic growth.

Author Abstract

The debate in economic policymaking about the drivers of innovation and job creation has long been centered on manufacturing versus services. The predominant view is that manufacturing drives innovation, wages, and growth, and that services provide less innovation and lower-wage jobs. We propose an alternative framework that focuses on the suppliers of goods and services to businesses and the government: the "supply chain economy." Our research shows that by categorizing the economy into supply chain versus business-to-consumer industries, a different picture emerges. The supply chain industries are a distinct category of the economy that is important to innovation and well-paid jobs. In particular, the supply chain services industries have the highest wages and intensity of STEM jobs in the U.S., and have experienced rapid growth in employment and wages in the last two decades. However, supply chain industries face unique challenges that may require new policy solutions from the public and private sector. Critical initiatives could focus on improving their access to skilled labor, buyers, and capital.