Brookings: Advanced Industries Anchor U.S. Prosperity

Advanced industries employ just 9 percent of the U.S. workforce, yet produce about 17 percent of all U.S. gross domestic product, 60 percent of exports, 85 percent of patents, and 90 percent of private-sector R&D expenditures, according to a new report by The Brookings Institution.  Using data from the Organization for Economic Co-operation and Development (OECD) and Moody’s Analytics, the report defines advanced industries as those where industry R&D spending exceeds $450 per worker and where at least 21 percent of workers have STEM-knowledge intensive occupations (the average across industries is 20 percent). The advanced industry sector is comprised of 50 industries, as defined by four-digit NAICS codes, with 35 manufacturing sectors, 12 service sectors, and three energy sectors. Advanced industries provide a significant wage premium at every level of education, and since 1975, average earnings in advanced industries have increased at a rate nearly five times faster than the economy as a whole.

Despite having the most productive advanced industries in the world besides energy-intensive Norway, the authors of the report contend that the United States’ competitive advantage in these industries is eroding. From 2000 to 2010, the United States saw the share of its jobs in advanced industries decline by more than any of 14 similarly developed nations. This decline can also be seen through the decrease in the U.S. share of global R&D and patenting falling faster than U.S. share of global GDP and population, suggesting more than just demographics are at work. Advanced industries also face challenges in other areas, such as labor supply shortages. Compared to international competitors, U.S. youth and adults perform poorly on math and science exams, and access to workers varies greatly by region.

Advanced industries typically cluster geographically to capitalize on shared innovation resources such as universities, skilled labor, or additional spillover effects. As could be expected, the Bay Area ranks very high in concentration of advanced industries. In the San Jose metropolitan area commonly used to describe Silicon Valley, 30 percent of all employment falls into an advanced industry. The San Francisco-Oakland MSA ranked fifth at 14 percent. Also ranking in the top five regions are Seattle (16 percent), Wichita (15.5 percent), known for its aerospace manufacturing, and Detroit (14.8 percent), where motor vehicle manufacturing and its supporting industries still reign supreme. Michigan had the highest share of total employment in advanced industries of all states (11.8 percent), followed by Washington (11.5 percent), Massachusetts (11.4 percent), Indiana (11.4 percent), and Virginia (11.1 percent).  

The report also lists priorities for improving the performance of these advanced industries. To expand on the findings of the Brookings report, Dominic Barton of McKinsey & Co. and Bruce Katz of Brookings’ Metropolitan Policy Program identify these priorities in a Harvard Business Review article. The first priority identified by Barton and Katz is a renewed commitment to innovation, especially “open innovation,” where industry, labs, and universities are encouraged to partner to rapidly get new ideas from concept to product. The authors also propose reforms in workforce education and training systems, emphasizing the need for industry-led, sector-specific training programs. In addition to strengthening the innovation and skills systems, Barton and Katz also suggest the need to strengthen regional ecosystems that help facilitate and improve productivity by gathering in one place innovation and workforce institutions, resource providers, and partners throughout an industrial supply chain.