Michael Spence, a Nobel laureate in economics, is Professor of Economics Emeritus and a former dean of the Graduate School of Business at Stanford University. He is Senior Fellow at the Hoover Institution, Senior Adviser to General Atlantic, and Chairman of the firm’s Global Growth Institute. He serves on the Academic Committee at Luohan Academy, and chairs the Advisory Board of the Asia Global Institute. He was Chairman of the independent Commission on Growth and Development, an international body that from 2006-10 analyzed opportunities for global economic growth, and is the author of The Next Convergence: The Future of Economic Growth in a Multispeed World (Macmillan Publishers, 2012).
MILAN/GRANVILLE, OHIO – The United States has a productivity problem, though one would never know it from looking only at the industries producing goods and services that are traded internationally. Because these goods and services account for only one-third of GDP and slightly over 20% of employment, as is typical for a developed economy, it is important also to consider the non-tradable sector that comprises the remaining two thirds of the economy.
The economy’s tradable sector comprises agriculture, forestry, fishing, and manufacturing – the production of goods, as either final or intermediate products – which in 2021 accounted for one-third of tradable value-added. The tradable sector also includes services such as research and development, consulting, information, and much of finance. Taken together, services account for about two-thirds of tradable value-added – a share that has increased over the last two decades.
Value-added for a firm or industry is calculated by subtracting purchased inputs like energy and intermediate products – excluding labor and capital – from total sales in dollars. It can be understood as the value created by the combination of labor and capital. That value is then captured as income for the labor (forming the upper limit on the average compensation of employees in the sector) and returns for the owners of the capital.
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