A new study from Dartmouth professors Teresa Fort and Andrew Bernard looks at the increasingly blurry distinction between manufacturers and wholesalers.
The focus of their research is Apple, which is essentially a “factoryless goods producers” or FGPs. Like a lot of firms these days, Apple is mostly a wholesaler that dabbles in manufacturing. Unfortunately, the U.S. Census doesn’t yet account for this nuance, and the result is a misleading portrait of the economy.
The authors define FGPs as “establishments outside of the manufacturing sector, but that perform pre-production activities such as design and engineering themselves and are involved in production activities either by doing (some of) them at the establishment or through purchases of contract manufacturing services.”
Tuck Insight: “The decrease in U.S. manufacturing employment over the last 10 years is well documented. In contrast, Bernard and Fort point out that we know very little about employment at FGPs. By analyzing the way that FGPs connect production, innovation, and knowledge, the authors hope to present a more complete assessment of aggregate economic activity and of firms’ manufacturing-related capabilities.”
Said Fort: “Understanding what’s really going on in the economy is important. It’s very different if those FGP firms are just doing traditional wholesale work versus designing, branding, and marketing their products. If we’re not thinking about those jobs correctly, we’re not going to have an accurate view on our long-term prospects.”
The bottom line: “Reclassifying FGP establishments to the manufacturing sector using our definition would have shifted at least 595,000 workers to as many as 1,311,000 workers from wholesale to manufacturing sectors in 2002 and at least 431,000 workers to as many as 1,934,000 workers in 2007.”