New research points to the growing importance of STEM-intensive services in driving innovation and job creation

CAMBRIDGE, Mass., October 3, 2017 — America’s service sector is often widely misconstrued as being made up of mostly Main Street businesses— retail stores and dry cleaners, for example. As a result, the service sector is often conceived of as being low-wage and low-innovation. New research from MIT’s Sloan School is challenging that view, citing the expanding ability of services in the United States to spur innovation and job growth.

A new working paper from MIT Sloan School senior lecturer Mercedes Delgado and Harvard Business School senior fellow Karen G. Mills, entitled “A New Categorization of the U.S. Economy: The Role of Supply Chain Industries in Innovation and Economic Performance,” separates high-wage and STEM-intensive supply chain services from Main Street services with important policy implications. 

To better understand the drivers of innovation and economic performance, the paper focuses on the suppliers of goods and services to businesses and the government, categorizing The Supply Chain Economy for the first time. By separating out services like cloud computing and engineering from retail and restaurants, Delgado and Mills have isolated a powerful and large new services subcategory.

“Our new categorization of U.S. industries has revealed a large and dynamic supply chain economy which plays a crucial role in innovation and in the creation of well-paying jobs,” Delgado said. “We estimate that the supply chain industries comprise more than 37 percent of all jobs. This is compelling when positioned in the context of job creation policy efforts that focus primarily on manufacturing, which accounts for only 10 percent of employment.” 

Delgado and Mills advocate that there is a need to better understand and redefine the services sector if policy efforts are to succeed in improving innovation and job creation. This would include separating low-tech services that are primarily for personal consumption from high-wage and high-tech service suppliers. Delgado cited companies such as Dropbox, Hubspot and IBM as examples of STEM intensive service suppliers.

Given the economic importance of the “supply chain economy,” in an accompanying policy briefing from the MIT Lab for Innovation Science and Policy, Delgado and Mills highlight the opportunity that this new categorization of the economy brings to policy makers. 

“Those working on policies to help spur innovation have a new set of questions to consider,” Delgado said. “For instance, the subcategory of suppliers of traded services has the highest wages, the highest presence of STEM jobs in the economy, and has experienced fast growth. Policy initiatives that support supply chain services could play an important role in fostering innovation, accelerating job growth and driving U.S. competitiveness.”

Mercedes Delgado is a Senior Lecturer at the MIT Sloan School of Management, and the Research Director and Research Scientist of the MIT Innovation Initiative Lab for Innovation Science and Policy.  Karen G. Mills is a Senior Fellow at the Harvard Business School, and served in President Barack Obama’s Cabinet and National Economic Council during her tenure as the 23rd Administrator of the U.S. Small Business Administration from 2009 to 2013.