The Servicification of the US Economy: The Role of Startups versus Incumbent Firms
Over the last few decades, the U.S. economy has exhibited a significant shift from manufacturing towards services. This transition has been particularly prominent in an important subcategory of services industries that drives innovation and employs many high-wage workers: Supply Chain Traded Services (Delgado and Mills, 2020). These industries provide specialized service inputs to organizations and are characterized by high upstreamness, which allow innovations to cascade down to other buyer industries. In this chapter, we explore the role of startups versus incumbent firms in driving the transition from manufacturing to Supply Chain Traded Services between 1998 and 2015. Using the Longitudinal Business Database of the U.S. Census Bureau, we find that startups experienced a large decline in Supply Chain Traded Services, both in terms of entry of new firms and growth of young firms. Instead, job growth in this sector has been led by established firms: the transformation of incumbent manufacturing firms towards services (e.g., Intel), and the growth of incumbent Supply Chain Traded Service firms (e.g., Microsoft). To complement our empirical findings, we discuss potential barriers for entrepreneurial firms, and illustrate the servicification efforts of several established firms. We conclude by offering broad policy implications.
Any opinions and conclusions expressed herein are those of the authors and do not necessarily represent the views of the U.S. Census Bureau. All results have been reviewed to ensure that no confidential information is disclosed. We thank Annie Dang for wonderful research assistance. We are particularly grateful for comments from the editors (Mike Andrews, Aaron Chatterji, Josh Lerner, and Scott Stern), Lambert Chu, Ben Jones, Steve Eppinger, Sharat Ganapati, Mark Gillett, Shane Greenstein, and Manuel Trajtenberg, and from the participants at the NBER Conference on The Role of Innovation and Entrepreneurship in Economic Growth. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
The author would like to acknowledge the hospitality offered by the TIES Group at MIT Sloan.