Not all productivity gains are the same. Here's why.

McKinsey: What Matters:

In 2000, imports of computer and electronics products from China and Mexico accounted for about 10 percent of the net supply to the US market (domestic shipments plus imports minus exports). By 2010, that percentage had risen to 37 percent. Meanwhile, the share of net supply coming from G7 countries, including the United States, fell from 69 percent to 43 percent (domestic shipments less exports, plus imports from other G7 countries).

These shifts in sourcing from high-cost to low-cost suppliers can show up as productivity growth in the United States. Let’s look at one example. Suppose a US automaker imports one million parts from a Japan-based supplier at $10 per part, for a total import bill of $10 million. Consider two scenarios:

Scenario 1: The US automaker improves its production process in its domestic factories, so it only needs half as many components. The import bill goes down to $5 million.

Scenario 2: The US automaker switches to a China-based supplier that only charges $5 per part. The import bill goes down to $5 million.

Surprisingly, these two scenarios are indistinguishable in the US economic statistics. In both scenarios, the import bill goes down to $5 million. The value-added of the US auto company goes up (sales minus the cost of materials), as does its profitability (sales minus cost of labor and materials) and measured productivity (value-added per worker).3

However, the two scenarios have very different implications for incomes and jobs. In the first scenario, the productivity gains come from an improvement in the domestic production process, which increases the value-added by each worker in its domestic factories. All else being equal, economic theory suggests this should result in an increase in the real wages of US auto workers and/or an incentive to boost the US employment of auto factories.

In the second scenario, the gains come from an improved ability of the company’s managers to identify new sourcing opportunities... All else being equal, economic theory suggests in this scenario, real wages and/or employment should rise for managers who are capable of identifying additional global opportunities to cut costs.