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Use of information and communication technologies in the fastest-growing wholesale trade industries spurred strong labor productivity growth in the sector as a whole, over the 1990-2000 period.

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According to the most recent economic census, there were more than 453,000 wholesale trade establishments in the United States in 1997, with total sales exceeding $4 trillion. These sales substantially exceeded total sales in the retail trade sector and also exceeded the value of all manufacturing industry shipments in the same year. BLS data show that 7.3 million workers were employed in wholesale trade industries in 2000, or about 6.5 percent of total business employment.

The wholesale trade industry provides an important link in the supply chain connecting producers with consumers in the economy. Wholesale firms act as intermediaries between goods-producers and the business customers that buy their products. These customers may be retail establishments, manufacturers, mining establishments, contractors, other wholesalers, or government agencies, among others. Wholesale establishments are characterized by the fact that they usually do not sell directly to household consumers--with few exceptions, their customers are businesses or institutions.

Wholesalers provide services both to the producers of the products that pass through their operations as well as to their customers who purchase those goods. In addition to the basic distribution function, wholesalers may be involved in marketing, sales, customer support, and market research--activities that benefit the wholesaler's supplier. For the benefit of the customer, wholesalers provide ready access to products in appropriate quantities, information on product characteristics and availability, sales advice, credit and financing, customer service, and technical support. (1)

The rapid diffusion of information and communications technology throughout the sector and the economy has led to shifts in the nature of the wholesale business. These shifts, in some cases, may threaten the traditional structure of the industry. In addition, heightened competitive pressures can place at risk the survival of many small local and regional wholesale firms that typify the industry.

Both the wholesale and retail trade industries are involved in getting the products of the goods-producing sector to consumers and other end-users. The wholesale-retail partnership in the distribution function invites comparisons between the two sectors, yet their differences are more striking than their similarities. In 2000, wholesale trade's 7.3 million workers were less than a third of the nearly 25 million employed in retail trade. At the same time, wholesale sector sales exceeded sales in retail trade, reflecting much higher levels of sales per employee in wholesale establishments. On average, employees in wholesale trade earn more per hour and work longer hours per week than workers in the retail sector. These differences reflect the presence of higher levels of skilled workers and fewer part-time workers in the wholesale sector. Wholesale trade's lower labor intensity and more highly skilled workforce, relative to retail trade, are likely to have played a role in the extent to which wholesalers were able to more quickly adapt to technological change. (2)

Wholesalers invested heavily in computers and other high-tech equipment and in computer software, allowing them to take advantage of technological advances more rapidly and to a greater extent than did retailers. (3) For example, wholesalers' quick adoption of new technology made it possible for them to take advantage of the growing use of Universal Product Code symbols on the products they handled to automate their operations. These advances, in turn, made feasible new production strategies such as just-in-time inventory management--the process in which shipments of production inputs are received just prior to their use. This strategy increases efficiency and helps to reduce inventory holding costs, benefiting both wholesalers and their customers. Wholesale firms were able to improve their efficiency in handling products and to offer new services to their customers.

These factors are reflected in relatively rapid labor productivity growth in the wholesale trade sector. Labor productivity, defined here as output per hour of labor input, grew at an average rate of 3.4 percent per year in wholesale trade from 1990 to 2000--substantially exceeding the 2.4-percent average rate in retail trade and the 2.1-percent per-year growth rate for the business sector as a whole. The strong growth in wholesale trade made an important contribution to overall labor productivity growth in the 1990s. (4)

Trends in wholesale trade labor productivity and its components, output and labor input, are examined in this article. (Throughout the article, references to `productivity' denote labor productivity.) Analysis is based on recently-introduced BLS productivity measures for the sector that cover overall wholesale trade; the two major groups of industries within wholesale trade (wholesale durable goods and wholesale non-durable goods); and the 18 industries classified in wholesale trade at the 3-digit level of the U.S. Standard Industrial Classification (SIC) system. (5) The data series currently cover the period from 1987 to 2000; they are updated as additional source data become available. (6)

Productivity trends are often analyzed over the course of a full business cycle in order to minimize cyclical effects on the results. The latest complete cycle stretched from a peak that occurred in July 1990 to the most recent business cycle peak in March 2001. Accordingly, this article focuses on trends over the 1990-2000 period. Output and productivity growth rates began to accelerate near the middle of the decade, particularly in certain `high-tech' industries such as the manufacture of computer equipment, electronic components and accessories (including semiconductors), and communications equipment. This speedup has attracted a great deal of scrutiny by researchers. Many of these studies have compared growth rates before and after 1995 to determine the magnitude of the acceleration. To investigate the question of whether there was a productivity speedup in wholesale trade, trends over the 1990--95 and 1995-2000 periods are examined.

The wholesale trade sector

Wholesalers reduce transactions costs throughout the supply chain by specializing in areas their suppliers and customers do not. Suppliers need not contract with many customers, and customers' time and monetary costs of searching for and transporting materials are reduced. (7)

Distribution functions include storing, handling, and transporting of goods. Storage generally takes place in wholesaler-owned or -leased warehouses. One of the wholesaler's most fundamental functions is the breaking up of large quantities of goods into smaller quantities and selling to many customers. While products are in inventory, wholesalers may sort, package, refrigerate, or assemble products. Then, they deliver, or arrange for the delivery of, the products to customers.

Wholesalers also provide customers with product information, customer service, and credit services. Wholesalers offer sales and marketing support to their customers by sponsoring events or promotions, or by providing display casing and signs.