Identifying Factoryless Goods Producers in the U.S. Statistical - - PowerPoint PPT Presentation

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Identifying Factoryless Goods Producers in the U.S. Statistical System

David Talan

BLS Technical Advisory Committee

Washington, DC November 18, 2016

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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

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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)

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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

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Motivation

 Factoryless goods producers are not

consistently classified in the U.S. statistical system.

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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

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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

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Options for Classifying FGPs in NAICS

1.

Manufacturing

 Outsourcing transformation tasks is no different than

• utsourcing other tasks

 Allows returns to intellectual property to be included in manufacturing sector

2.

Wholesale trade

 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

3.

Management of companies and enterprises

 Both manage the manufacturing process  Ignores design and de-emphasizes selling

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Options for Classifying FGPs in NAICS

4.

Research and development

 If FGP acquires design, there is no R&D activity  Would have to expand R&D sector definition to include this selling of products

5.

Split based on location of transforming establishment

 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

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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

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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

• f inputs for classification

Focus on entrepreneurial risk

 Deferred implementation from 2012 to 2017

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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

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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

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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.

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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…”

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Reactions to Federal Register Notice for NAICS 2017 Revision

 1st Federal Register notice soliciting

proposals

May 22, 2014 Asked for public comment on FGP issue

 Lots of articles and blog postings

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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.

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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

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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?”

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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

• ffshore.”

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Next Steps

 Results of this research, testing, and

evaluation could lead to a different FGP proposal for consideration or implementation.

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Contact Information

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David Talan

Chief, Division of Administrative Statistics and Labor Turnover US Bureau of Labor Statistics 202-691-6467 Talan.David@bls.gov