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

Jennifer Edgar, James L. Esposito, Brandon Kopp, William Mockovak, and Erica Yu

Abstract

Since 1945, international trade has surged and the global economy has undergone rapid change leading to the rise of global value networks and the relocation of production activities across national borders (Bernard and Fort, 2015). As described on its website, “The North American Industry Classification System (NAICS) was developed under the direction and guidance of the Office of Management and Budget (OMB) as the standard for use by federal statistical agencies in classifying business establishments for the collection, tabulation, presentation, and analysis of statistical data describing the U.S. economy.“2 Currently, establishments that outsource all transformational activities, known as factoryless goods producers (FGPs), are not uniquely identified in the NAICS, and thus may be inconsistently classified across U.S. statistical programs with a possible impact on U.S. economic measures. Doherty (2013, 2015) points out that outsourcing of manufacturing activities and the subsequent fragmentation of the traditional production model (where all production activities are handled within the same establishment or firm) are not consistent with the current structure of the NAICS, which is based on the similarity in processes establishments use to produce goods or services. Consequently, Doherty (2013, 2015) also notes that to allow for consistent classification of FGPs a definitional model is needed that reflects modern-day production decisions made by firms in response to ongoing changes in global economic conditions. In response to this challenge, the Bureau of Labor Statistics (BLS) initiated research to explore key FGP concepts and characteristics. This paper summarizes the results of two field tests conducted by BLS, where about 550 establishments in each test were mailed a paper classification form and then a subset of respondents were selected for telephone debriefing interviews. Results suggested that the classification scheme originally developed may not align well with how establishments operate, and the language used to describe FGP characteristics is ambiguous and possibly industry specific. This paper will summarize results from the field tests, present lessons learned, and describe future challenges and research related to classifying FGPs.