In this report, the featured measure of production for KTI industries is value added in current dollars (not adjusted for inflation). Value added is a net measure of output; it is the difference between the value of goods and services produced by an industry (gross output) and the total cost of intermediate inputs that were used in production, including energy, materials, and services purchased from other businesses. For production activities that take place within a country’s geographic borders, industry value added measures the contribution from each industry to overall GDP.

The U.S. data on value added by industry presented in the report are from the Industry and Regional Economic Accounts of the U.S. Bureau of Economic Analysis (BEA). The source for data for KTI employment is the U.S. Census Bureau’s 2019 American Community Survey (ACS).^{​The U.S. production and employment data have been crosswalked from the 2012 North American Industry Classification System (NAICS) to the 4th revision of the International Standard Industrial Classification of All Economic Activities (ISIC, Rev.4) for comparability with the international data. See the Technical Appendix for more details.} International data on value added of KTI industries are drawn from the Comparative Industry Service, a proprietary database from IHS Markit. A detailed description of these data sources is provided in the Technical Appendix.

KTI industries perform and fund more than half of U.S. R&D (see Indicators 2020 report, “Research and Development: U.S. Trends and International Comparisons”). Much of the productivity growth in the United States since the late 1990s is attributable to three of the KTI industries: computer and electronic products, software publishing, and IT services (Nordhaus 2005; Baily and Montalbano 2016). The analysis in this report shows that, compared to other industries, U.S. KTI production has shown resilience to economic downturns (although that varies by disaggregated industries), including the downturn that resulted from the unfolding global COVID-19 pandemic beginning in 2020.

Along with the analysis of overall production trends, this section presents new analysis on the distribution of KTI production across the nation and the composition of KTI employment by STEM workforce categories. Specifically, the regional analysis examines the geographic distribution of U.S. KTI production, the contribution of KTI industries to states’ economies, and the regional specialization of KTI production. Even with globalization, geography remains important because competitive advantages often arise from concentrations of highly specialized skills and knowledge, access to institutions, specialized incentives, and other advantages of productivity and innovation that are difficult to access from a distance (Porter 2000).

The analysis on the composition of the KTI employment by STEM workforce categories focuses on underrepresentation of women, Blacks or African Americans, Hispanics or Latinos, and American Indians or Alaska Natives, and the concentration of foreign-born talent. Underrepresentation signals a lack of diversity in the workplace and can negatively impact productivity, innovation, and entrepreneurship (Hsieh et al. 2019; Bell et al. 2019; Flabbi et al. 2019). Because foreign-born workers are proportionately greater in the STEM occupations compared to the general population, immigration policies can affect the flow of this critical source of science and engineering (S&E) skills and knowledge (Kerr and Kerr 2020).

KTI industries generated nearly $2.4 trillion in value added in 2020 and accounted for over 11% of domestic GDP (Table KTI-1). The three largest KTI industries in the United States are IT and other information services; computer, electronic, and optical products; and software publishing. Jointly, they accounted for more than half of the total value added generated by U.S. KTI industries in 2020.

KTI manufacturing industries accounted for 53% of total U.S. KTI value added in 2020, while service industries accounted for the remaining 47% (Table KTI-1). Computer, electronic, and optical products; chemicals and chemical products; and pharmaceuticals led production among the KTI manufacturing industries, jointly accounting for 30% of the total value added generated by U.S. KTI industries in 2020. IT and other information services led production among the KTI services industries, followed by software publishing. These two services industries jointly accounted for 40% of U.S. total KTI value added. In addition to its concentration in a few industries, U.S. KTI production is highly concentrated and specialized geographically. (See sidebar Geography of KTI Production in the United States.)

The composition of U.S. KTI production has notably changed since the early 2000s as the value added of KTI services industries has increased much faster than that of manufacturing industries, resulting in the services share of KTI value added increasing from 29% in 2002 to 47% in 2020 (Table SKTI-1). From 2002 to 2020, the share of total KTI value added for IT and other information services—the largest KTI service industry and the largest KTI industry overall—increased by more than 12 percentage points (Figure KTI-1). The share of total KTI value added for software publishing also increased by 6 percentage points. A major driver of the increase in software publishing has been the rise in U.S. business investment in software, which nearly tripled from 2002 to 2020 (from $152.5 billion to $453.4 billion) (BEA 2021a).

In contrast, the manufacturing share of total KTI value added declined from 71% in 2002 to 53% in 2020. The share of total KTI value added for computer, electronic, and optical products—the largest KTI manufacturing industry—declined by more than 3 percentage points during this period. Other notable declines include a 6 percentage points drop in the share of motor vehicles manufacturing and a drop of 3 percentage points in other machinery and equipment manufacturing.

The rate of increase in KTI value added has outpaced that of current dollar GDP for more than a decade (Table KTI-2). From 2005 to 2010—a period that includes the Great Recession—KTI value added increased on average 4.3%, moderately faster than the 2.9% average increase in GDP. The average annual increase in KTI value added was a full percentage point higher than the rate of GDP increase (4.9%, compared to 3.9%) from 2010 to 2015. Since 2015, KTI value added has increased faster than GDP each year, driven primarily by the KTI services industries with annual increases ranging from 7.3% to 11.1%. KTI value added continued to increase through 2020, albeit at a lower rate, despite the COVID-19 pandemic’s effect on the economy.

In 2020, even as GDP declined by nearly half a trillion dollars (or 2.2%), KTI value added increased by over $50 billion (or 2.2%) (Figure KTI-2; Table SKTI-1).^{​While some COVID-19 impacts can be explicitly identified in some components of GDP—for instance, the impacts of recovery programs like unemployment insurance or the Paycheck Protection Program on aggregate federal government spending—the total effects of the COVID-19 pandemic cannot be separately identified in the value-added data because the impacts are embedded in source data. For more information, see BEA (2021b).} This increase was led by increases in value added generated by information and communications technology (ICT) industries (IT and other information services; software publishing; and computer, electronic, and optical products), scientific research and development, medical and dental instruments, and pharmaceuticals.

The single biggest increase was in the value added generated by the software publishing industry, which increased by over 14% (Figure KTI-2; Table KTI-2). The value added generated by IT and other information services and computer, electronic, and optical products also increased (4% and 3%, respectively); collectively, these industries contributed more than 3 percentage points to the increase in total KTI value added in 2020. ICT industries played a central role in many aspects of the pandemic, including supporting businesses and schools in the transition to remote work and remote learning as well as assisting medical professionals in the digital delivery of healthcare services (Brynjolfsson et al. 2020; Bacher-Hicks, Goodman, and Mulhern 2020; Bokolo 2020).

Other notable increases were in the value added generated by the scientific research and development (12%), medical and dental instruments (10%), and pharmaceuticals (7%) industries. These industries were essential to the production of medicine, medical equipment, and supplies needed to treat the virus and the development of COVID-19 vaccines. They jointly contributed 1.5 percentage points to the increase in total KTI value added as the surge in demand due to the COVID-19 pandemic caused significant shortages in medical supplies (Gereffi 2020; Nagurney, Salarpour, and Dong 2021).^{​As of the time this report was compiled, the U.S. Food and Drug Administration continues to track shortages in medical devices and supplies throughout the COVID-19 pandemic, primarily in personal protective equipment, testing supplies equipment, and ventilation-related products: https://www.fda.gov/medical-devices/coronavirus-covid-19-and-medical-devices/medical-device-shortages-during-covid-19-public-health-emergency.}

The output of several KTI industries declined from 2019 to 2020, largely as a result of pandemic-induced supply chain disruptions.^{​See Dunn (2021) for a chronicle of supply chain impacts since the beginning of the pandemic.} The value added generated by manufacturing of air and spacecraft, motor vehicles, electrical equipment, other machinery and equipment, and chemicals and chemical products declined (Figure KTI-2). Among these industries, the value added generated by the air and spacecraft industry had the largest decline (24%) and subtracted 1.5 percentage points from the increase in total KTI value added.

KTI industries employed approximately 12 million workers, accounting for 8% of total U.S. employment in 2019 and 16% of the STEM workforce (Table SKTI-2).^{​See Technical Appendix for details about the methodological approach to estimating employment in KTI industries.} Among KTI industries, the IT and other information services industry employed the most workers, accounting for 32% of the total KTI workforce. The next three largest industries in terms of employment (motor vehicles; computer, electronic and optical products; and other machinery and equipment manufacturers) jointly employed another 32% of workers in KTI industries.

Compared to all industries, KTI industries employed disproportionately more workers in STEM occupations. At the low end, workers in STEM occupations comprised 35% of those employed by motor vehicle manufacturers. At the high end, they comprised 60% of those employed by the scientific research and development industry (Figure KTI-3). In comparison, workers in STEM occupations comprised about a quarter of the U.S. workers across all industries (see Indicators 2022 report, “The STEM Labor Force of Today: Scientists, Engineers, and Skilled Technical Workers”).