UK continues to be a manufacturing nation, says ONS

sage 50 construction improvesPerceptions that manufacturing is disappearing from the UK are wide of the mark, according to the Office for National Statistics (ONS). Despite the number of workers employed falling significantly since the late 1970s, total manufacturing output is now actually slightly higher. It has declined in relative size, though, as other sectors have grown more quickly. Its share has fallen from 36 per cent of the economy in 1948 to around 10 per cent in 2013.

Speaking at an event for business and government in London, ONS’ Chief Economist, Joe Grice, presented analysis showing that productivity in the manufacturing industry has risen by around 2.8% a year since 1948, compared with 1.5% in the service industry. While only 8% of UK jobs are now in manufacturing, compared with 25% in 1978, today’s workers are significantly better skilled and more experienced.

“The manufacturing industry has changed markedly over the past sixty years,” says Mr Grice. “It is becoming more productive, despite a steady fall in the number of people employed and broadly stable capital stock, and economic downturns in the 1970s, early 1990s, and notably 2008-9.

“There are several factors at work: a better quality and more skilled workforce; a shift from the production of low to high productivity goods; an improvement in the information technology base; more investment in research and development and a more integrated global economy. Exporting
firms generally are associated with higher productivity and foreign-owned firms in the UK generally experience higher productivity than domestic firms

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The Changing Shape of UK Manufacturing is a joint initiative by ONS and the Department for Business, Innovation and Skills (BIS) to look at how manufacturing has changed in the UK and what current trends tell us about these changes.

Findings from ONS’ research presented show that:

· Manufacturing productivity has grown by 2.8% on average per annum since 1948 – compared to 1.5% in the services industry.

· The number of jobs have reduced across all manufacturing sub-industries since 1978, a portion of which could be attributed to outsourcing. The fall in jobs in textiles have been particularly strong – with a reduction of over 80% between 1979 and 2013. Jobs in the wood and paper sub-industry have been the most resilient of the manufacturing sub-industries, falling 40%.

· Despite falling jobs, the quality of labour utilised has improved.The skills and experience base has increased at a faster pace in manufacturing than most other industries, with the exception of
financial services and non-manufacturing production (including oil and gas extraction). Between 1993 and 2013, the proportion of people aged 50+ working in the industry has risen from 20% to 30%, offset by a fall in the proportion of workers aged 16-29. The proportion of hours worked by people with no qualifications fell from just over 26% to 8% since 1992, with a noticeable increase in graduate workers. The same trend is visible across the wider economy, but to a lesser extent.

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· The increase in manufacturing productivity since the early 1990s has been broad based and each manufacturing sub-industry has contributed – with chemical and pharmaceutical products making the largest contribution. All manufacturing industries have become more productive since 1997. Analysing data at a lower level suggests that there may have been movement from the production of low value goods to high value goods within each sub-industry.

· Productivity growth tends to be higher in firms with higher levels of ICT maturity, but the relationship is stronger in manufacturing than services. Manufacturing firms that have a low ICT maturity have seen productivity fall, while firms that have high ICT maturity have seen
fast productivity growth of just over 11% per annum between 2001 and 2007.

· It is possible that manufacturing firms previously provided support services such as transport and wholesale in-house – but are now sub-contracting these functions. Therefore activities that would traditionally be classified as manufacturing and are generally associated with lower productivity are now classified in the services industry.

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