Characterising deindustrialisation: An analysis of changes in manufacturing employment and output internationally

Abstract

Abstract Deindustrialisation is typically conceptualised as a decline in manufacturing as a share of total employment. From a Kaldorian perspective deindustrialisation could have negative implications for long-run growth, given the special growth-pulling properties of manufacturing. However, defining deindustrialisation purely in terms of employment share is conceptually limiting given that some of the Kaldorian processes operate primarily through output rather than employment, as well as blunting empirical analysis by not focussing enough on changes in manufacturing share of gross domestic product (GDP). This study develops a new method using decomposition techniques to analyse changes in manufacturing employment levels and shares in 48 countries over periods of ‘deindustrialisation’. The analysis separates out changes in the levels and shares of employment manufacturing into components associated with changes in the share of manufacturing in GDP, the growth of manufacturing value-added, the labour intensity of manufacturing production and economic growth. The results indicate that in most cases the decline in manufacturing employment is associated primarily with falling labour intensity of manufacturing rather than an overall decline in the size or share of the manufacturing sector. We suggest that deindustrialisation should appropriately be defined in terms of a sustained decline in both the share of manufacturing in total employment and the share of manufacturing in GDP.