Identifying Factoryless Goods Producers in the U.S. Statistical System David Talan BLS Technical Advisory Committee Washington, DC November 18, 2016 1 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov
What is the North American Industry Classification System (NAICS)? Developed in cooperation with our NAFTA partners, Canada and Mexico Economic Classification Policy Committee (ECPC) represents U.S. with members from BEA, BLS, Census, and OMB Established in 1997 Concept: Group establishments by production processes 2 2 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov 2 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov
The 4 Principles of NAICS The production function concept Gives special attention to emerging industries and service industries Maintains time series continuity to the extent possible Strives for greater comparability with the International Standard Industrial Classification of All Economic Activities (ISIC) maintained by the United Nations Statistics Division (UNSD) 3 3 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov 3 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov
Motivation Traditionally, all production chain tasks were performed in one establishment or in multiple establishments of one firm Improvements in communications, technology and transportation allowed steps to be performed in different locations even internationally Establishments can focus on innovation and control all production chain tasks without directly performing any transformation 4 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov 4 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov
Motivation Factoryless goods producers are not consistently classified in the U.S. statistical system. 5 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov 5 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov
Fragmentation and Economic Statistics Economic statistics not designed to handle the completely fragmented production model Manufacturing industry statistics based on the output of establishments that perform transformation Need a model that can accommodate production fragmentation decisions that are made by establishments in response to continual changes in global economic conditions These establishments are responsible for products being manufactured This economic activity is currently not being measured 6 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov 6 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov
Factoryless Goods Producers Concept Factoryless Goods Producers (FGPs) are establishments that: Do not perform manufacturing transformational activities, but… Own the design or intellectual property of a product, and Control the production process 7 7 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov 7 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov
Options for Classifying FGPs in NAICS Manufacturing 1. Outsourcing transformation tasks is no different than outsourcing other tasks Allows returns to intellectual property to be included in manufacturing sector Wholesale trade 2. Composition of labor and capital expenses are similar Wholesale trade margins are for buying and selling only FGP margins would include design and production oversight Management of companies and enterprises 3. Both manage the manufacturing process Ignores design and de-emphasizes selling 8 8 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov 8 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov
Options for Classifying FGPs in NAICS Research and development 4. If FGP acquires design, there is no R&D activity Would have to expand R&D sector definition to include this selling of products Split based on location of transforming establishment 5. Manufacturing if it is done domestically Wholesale trade if it is done in a foreign location Doesn’t handle establishments that switch or outsource both domestically and internationally 9 9 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov 9 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov
Timeline NAICS 2012 Implementation FGP concept delayed until 2017 Federal Register Notices for NAICS 2017 May 2014 August 2014 NAICS 2017 Implementation FGP concept delayed until 2022 10 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov 10 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov
ECPC Decision for NAICS 2012 Classify FGPs in manufacturing in NAICS Consistent with treatment of similar types of establishments in other sectors Rejected ISIC decision to use legal ownership of inputs for classification Focus on entrepreneurial risk Deferred implementation from 2012 to 2017 11 11 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov 11 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov
Reactions to FGP Concept: FESAC Meeting June 14, 2013 Discussion by Barry Bosworth raised concerns Fragmentation of production into specialized establishments raises many interesting economic issues. Both domestic and foreign aspects. The development of networks of specialized establishments is an old phenomenon Reflected in distinction between establishments and enterprises New element seems to be emergence of global supply networks (chains) Extreme version – factoryless manufacturing 12 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov 12 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov
Concerns about FGP Concept Not clear about the problems that all these changes are meant to resolve. The issue of the boundaries of production is intimately tied in with tax concerns. Changes are potentially very extensive affecting all major business statistics programs 13 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov 13 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov
Concerns Raised Focus on redefinition of the role of establishments, not enterprises. Basic problems raised by outsourcing exist in both domestic and international context. Potentially very disruptive Feasibility of changes in data collection have not been fully evaluated. 14 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov 14 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov
WSJ Article FGP Concept “U.S. Agencies Consider Redefining Manufacturing: Counting 'Factoryless Goods Producers' Would Boost Size of Industrial Sector” Wall Street Journal, March 14, 2014 “Should a company be called a manufacturer if it doesn't make what it sells? The answer isn't as obvious as it seems…” 15 15 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov 15 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov
Reactions to Federal Register Notice for NAICS 2017 Revision 1 st Federal Register notice soliciting proposals May 22, 2014 Asked for public comment on FGP issue Lots of articles and blog postings 16 16 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov 16 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov
FGP Article “Statistics that Spin: Foreign Goods to Be Considered U.S. Goods ?” June 5, 2014, Economic Policy Institute Written by Owen Herrnstadt, Chief of Staff to the International President and Director of Trade and Globalization for the International Association of Machinists and Aerospace Workers. 17 17 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov 17 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov
OMB Removes 2017 Implementation Requirement On August 8, 2014 OMB Issues a Federal Register Notice Regarding Implementation of the Factoryless Goods Producer Classification in NAICS 2017 OMB removes NAICS 2012 FGP requirement for statistical agencies to implement this concept in 2017 Approximately 22,000 individual comments on the FGP issues from the May 22, 2014 Federal Register Notice 18 18 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov 18 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov
Comments from the Federal Register Notice “… this idea stinks.” “If the jobs aren't in the United States they should not be counted as "American" jobs. If you skew the data then how will anyone be able to understand what the real truth is ?” “Are they out of their flipping minds !” “Lame.” “Stop this madness.” “If it is not actually made on American soil, it is not "Made in the USA ".” “What is this a joke?” 19 19 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov 19 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov
Article on FGP Delay “White House Delays Proposal To Reclassify 'Factoryless Goods Producers‘” August 8, 2014, International Business Times “After an outcry by labor unions and consumer groups, the Obama administration announced Friday it would delay a controversial proposal to classify so-called factoryless goods producers as domestic manufacturers, even if the manufacturing jobs associated with those producers are offshore .” 20 20 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov 20 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov
Next Steps Results of this research, testing, and evaluation could lead to a different FGP proposal for consideration or implementation. 21 21 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov 21 — U.S. B UREAU OF L ABOR S TATISTICS • bls.gov
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