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Study shows manufacturing value chain encompasses one-third of U.S. economy
- March 1, 2016
- News Release
- Shop Management
New research by Arlington, Va.-based MAPI Foundation Chief Economist Dan Meckstroth, using analysis of national input/output tables by Interindustry Forecasting (Inforum) at the University of Maryland, shows that two measures commonly used by the government to quantify manufacturing’s overall footprint significantly underestimate the impact of the factory sector.
While official statistics state that manufacturing’s proportion of U.S. GDP stands at about 11 percent, this new research reveals that manufacturing actually accounts for about one-third of GDP, three times the impact that a simplistic analysis of the data suggests.
A second popular measure, the multiplier effect, which expresses the increase in income and consumption generated by a specific economic activity, also is almost three times higher than presumed. The MAPI Foundation’s report estimates manufacturing’s value-added multiplier at 3.6; this means that for every $1.00 of value added by domestic manufacturing, the sector generates $3.60 of value elsewhere in the U.S. economy.
The study also shows that manufacturing has a much bigger effect on employment than government data suggests. While the factory workforce accounts for 9 percent of total full-time employees in the nation, an additional 23 percent of the nation’s workers are linked to manufacturing, making the total footprint equal to 32 percent of the U.S. workforce. For every manufacturing job, 3.4 full-time jobs are created elsewhere in the U.S. to support manufacturers’ efforts.
The MAPI Foundation undertook the research because the official methodology for calculating manufacturing’s impact does not capture a large portion of the value driven by manufacturing activity. Among these, official manufacturing statistics are based on information collected at the “establishment”—or plant—level, as opposed to the “firm” level. As a consequence, numerous manufacturing-related activities, including corporate management, R&D, and logistics operations, are not included within the NAICS codes for manufacturing.
In addition, government calculations include only the creation of value in manufacturing’s upstream supply chain and at plants. This ignores associated activities in the downstream sales chain of manufactured goods sold to final demand, as well as intermediate inputs for nonmanufacturing sectors’ supply chains.
“The MAPI Foundation’s revised calculations provide more comprehensive analysis of manufacturing’s total value chain,” said Meckstroth. “Economic statistics say that manufacturing industries are of only minor importance, but our research shows that they lie near the center of a substantial and complex value chain and that the conventional measurement of manufacturing’s footprint is grossly underestimated.”
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