In one form of specialization, countries concentrate on a particular phase of a product cycle. Since the U.S. has the highest rate of international patenting per capita in the world, it can be thought of as specializing in product innovation, the first phase of the cycle. Once a product matures, however, the U.S. can lose some comparative advantage in producing that good. Highly-skilled U.S. workers may not be cost-competitive when it comes to routine production of commodities. So when a product becomes a commodity, its production may move overseas.
Competition among producers works to lower the price of the commodity, raising the purchasing power (wealth) of consumers and thus their demand not only for that good but for others. This process is the source of new jobs for the U.S. workers displaced when jobs go overseas. As wealth increases and demand grows, workers find employment elsewhere in the economy, some moving on to the design and creation of the next new product. Seen in this way, the FRBNY economists write, the country's ability to continue sending jobs overseas may be, at least in part, a sign of its ongoing success in innovation.
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