Published in September 2010 issue of Prospect Magazine
In Britain, employment in manufacturing peaked in 1966, when there were over 8m jobs in the sector. By 2009, this number had fallen to a little over 2.5m. So, every year for the last 43 years, an average of 130,000 manufacturing jobs have disappeared. However, this picture is not quite all that it seems. First, manufacturing employment consists of all the people who work in companies whose main business is manufacturing goods. But many of these employees are not involved in making things—they may be caterers, accountants, lorry drivers and so on. Second, manufacturing output is a value-added measure. Roughly speaking it consists of the sales revenue of manufacturing companies minus the cost of all goods and services bought in by these firms from outside, such as raw materials, parts and various services. These definitions have very important consequences. Suppose, for example, a manufacturer decides to invite an outside company to run its canteen. So the canteen workers are no longer manufacturing employees but are now employees of the catering company—that is, service sector workers. So manufacturing employment and manufacturing output has fallen while service sector employment and output has risen. This, despite the fact that the total amount of stuff produced by the manufacturing company remains unchanged. The ability of manufacturing companies to outsource activities to non-manufacturing companies is almost limitless. And the actual making of goods can be outsourced too. For example, there are food-processing companies whose workers are provided by employment agencies. So even the workers who process the food are employees of the agency, a service-sector company, and are therefore service-sector workers. Outsourcing in manufacturing has increased dramatically over the last 40 years. Precisely what impact this has had on manufacturing employment and output is not known. But it is certainly substantial. So while there has been a significant decline in manufacturing over this period, it is rather less significant than it looks.