importance of manufacturing industry
Although manufacturing now accounts for little over one fifth of total national output (GDP) and an even smaller share of total employment, many economists argue that the economic health of manufacturing has important implications for other industries.
Manufacturing is not an island. If industrial production falls and thousands of jobs are shed, this has significant ripple effects through related service industries. The multiplier effects of a rise or fall in industrial production are important, not least for those regions of the UK whose traditional dependence on manufacturing industries remains well above the national average.
Many service sector jobs depend on manufacturing there are close linkages between the sectors. Jobs lost in manufacturing cannot always be absorbed by increasing employment in the service industries.
In May 1999, the journalist Will Hutton (author of The State We're In and The State to Come) wrote this about the problems facing manufacturing, and the significance for the regional economies of the UK
"A strong manufacturing sector is thus not a throwback but is fundamental to providing work in the West Midlands, West Yorkshire, the Welsh valleys and central Scotland, where the service sector can never thrive. It is based in the regional capitals, not in towns which are too small and too poor to sustain a strong service sector. Nor is manufacturing yesterdays economy. We will use more cars, ships, clothes, computers and televisions in 20 years time; the only question is how many we choose to manufacture here. Talk of the knowledge economy as if it exists only on disembodied computer terminals is silly; knowledge has to be represented in artifacts, and they have to be manufactured."
A long term decline in industrial employment can create a major problem of structural unemployment - where workers made redundant from industry experience occupational immobility and find it difficult to gain re-employment in sectors where new jobs are being created.
Manufacturing and Productivity
Manufacturing industry has over the years, been a major a source of rapid productivity growth. The sector has also offered higher than average wages for males in full-time employment. The long term decline of manufacturing has been and will remain a key cause of structural change in the British labour market.
Manufacturing and the Balance of Payments
A high percentage of total manufacturing output is exported overseas - indeed the sector is highly exposed to global economic forces such as changes in the exchange rate and fluctuations in the international economic cycle. The decline of manufacturing is shown by the widening deficit in trade in goods. In 2000, the gap between exports and imports of goods surged to nearly £29 billion. The deficit in finished manufactured goods was over £12.5 billion - twice the scale of deficit compared with 1998.
Manufacturing and the Regional Economy
Health is critical to regional economic balance and prospects of narrowing the North-South divide. Many of the towns with higher than average unemployment are those that have experienced recessions and slow growth in industrial production and the consequent job losses and plant closures.
The key point is that there are strong inter-relationships between manufacturing and the rest of the economy. A deep recession in manufacturing could seriously damage overall prospects for economic growth - because of the negative multiplier effects and the wider impact on consumer confidence and business investment
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