The OECD on Why Manufacturing Still Matters

The OECD  have released a modestly interesting, highly empirical  report on the changing nature of the manufacturing sector in advanced industrial economies.
It speaks, somewhat tangentially, to the issue of whether “deindustrialization” should be of concern to policy-makers.

As is well-known, the declining share of manufacturing employment has been pervasive across OECD countries since 1970… though the study finds that declines in the absolute number of manufacturing jobs have been concentrated in just two sectors – textile products and metal products.

One interesting finding is that, since the 1980s, changes in manufacturing employment have NOT reflected  a shift from low to high technology industries. Almost all  medium and high technology sectors in OECD countries in fact shed jobs, 1990-2003. Thus job loss is not simply a trade-driven restructuring story, with low tech activities moving South and the OECD comparative advantage in higher tech industries becoming more apparent..

Manufacturing job loss has, it is argued, taken place in a context of  continuing growth in manufacturing production and value-added  in OECD countries (including in Canada.)  The share of manufacturing in total economy value-added has, however, declined. This is partly due to above average productivity growth in manufacturing, and partly to falling prices for goods compared to services. “While manufacturing production has continued to increase, manufacturing products have become relatively cheap and therefore account for a smaller proportion of the economy.” (p.11) (In the case of Canada, however, the manufacturing share of value-added remained almost constant, 1980 to 2003, at a bit under 20%.)

One inference – unstated – is that increased ‘globalization’ of manufacturing has impacted on jobs through at least 3 channels – shifts of production; increaded pressures to raise productivity in domestic operations; and falling relative prives for manufactured goods.

Despite a general decline in manufacturing as a share of value-added, it is documented that demand for manufactured products remains generally much higher as a share of total demand (about 35% in the case of Canada.)

The study documents the rising non OECD share of manufacturing production, the rise of international value-chains, and the widely varying mix of manufacturing industries in OECD countries.  In this context, Canada has been something of a winner, gaining international market share in goods, but with a lower than OECD average high and medium tech industry share in the mnaufacturing sector.

The study notes that productivity growth in manufacturing is generally significantly faster than average in OECD countries, meaning that (in Canada also) its contribution to economy-wide productivity growth is significantly greater than its share of value-added. Also, the majority of business sector R and D in almost all OECD countries (60% in the case of Canada) takes place in manufacuring, mainly in high and medium technology industries.  The OECD manufacturing sectors also continue to dominate global innovation as measured by a sophisticated index of patents, and the occupational mix in manufacturing has been shifting away from direct production workers to both high and low level service type occupations.

While not directly stated, the paper supports the view that manufacturing remains a very important part of OECD economies, and that national performance in manufacturing still matters even as manufacturing shrinks as a share of employment.

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