Imported Inputs to U.S. Production and Productivity: Two decades of Evidence

Lucy P. Eldridge and Susan G. Powers

Abstract

Imports have increased in importance in U.S. production over the past 2 decades. From 1997-2015 imports have grown from 8 to 10 percent of all intermediate inputs - materials, services and energy - used by U.S. firms to produce goods and services. The substitution of imported inputs for domestically produced intermediate inputs or U.S. labor– known as offshoring or offshoring outsourcing – has raised questions about the impact of imported inputs on US labor productivity and economic performance. The June 2010 Monthly Labor Review article “Effects of imported intermediate inputs on productivity,“ by Lucy P. Eldridge and Michael J. Harper developed a framework for estimating the effects of imported intermediate inputs on U.S. labor productivity. In that study, the production model used by the Bureau of Labor Statistics (BLS) to calculate multifactor productivity measures was expanded to treat imported intermediate inputs as an input to production in the U.S. private business sector, rather than as a subtraction from output.1 This model allows the analysis of offshoring. In addition, the Eldridge-Harper study isolated imported inputs used by the manufacturing sector to assess their impact on productivity. This article updates the earlier estimates for 1997-2006, extending the analysis through 2015 and showing that imports continue to be an important contributor to U.S. production.