Overview of production, employment and consumption developments in OECD countries
Trade, production and consumption are jointly determined which means any technological, behavioural or policy changes that influence one of these categories will also exert an influence over the others. For example, a discovery of a highly demanded natural resource in a country may change the initial specialisation pattern provided the resource can be exported and provided that supply capacity exceeds domestic demand.
This section reviews the main broad developments in production, employment, and consumption. Core data used for this purpose come from the OECD Structural Analysis (STAN) database4 and the International Trade and Balance of Payments (ITBP) database compiled by the OECD and the Eurostat. Trade data used in the next section come from for the United Nations Commodity Trade Statistics Database (COMTRADE).5
Production and employment
Despite the considerable structural and institutional differences among the individual OECD countries, a relatively uniform picture emerges across this country grouping of a declining contribution of agriculture and, to a lesser extent manufacturing, to value added, and of increasing contribution of the services sector (Figure 2.5).
Indeed, in the 1985-2007 period all OECD economies experienced gradual reductions of shares of agriculture in output and value added and some of the most significant reductions occurred in countries with highest initial shares, such as Iceland and Korea. Agricultural output in 1985 for Iceland accounted for 10% of that year’s total output. This figure represented the biggest share this sector had in total output across OECD members since the mid-1980s. During the same year, the rest of the OECD countries reported shares below 8% with Korea and New Zealand reporting the second and third biggest shares, respectively. Since then, Iceland and Korea recorded the deepest percentage reductions in the period 1985-2007; bringing the shares of agriculture in output to 5 and 2% in Iceland and Korea. In most other OECD countries shares have declined as well to the level below 4% of total output.
Figure 2.5. Changing structure of the OECD economies
Panel A. Contribution of agriculture to value added in the OECD countries,
Panel B. Contribution of manufacturing to value added in the OECD countries,
Panel C. Contribution of services to value added in the OECD countries,
a) New Zealand, 2004; Canada, 2005; Australia, 2006; Japan, 2006; Poland, 2006; Portugal, 2006; Switzerland, 2006. Source: OECD STAN Database.
Manufacturing’s shares of output and value added have been generally higher than those of agriculture and developments in manufacturing have been more heterogeneous across OECD membership (Figure 2.5). Manufacturing’s shares of output increased in a small number of formerly centrally planned economies (Czech Republic, Slovak Republic, Hungary and Poland) as well as in Germany in the period 1995-2007. Korea was, and still is, the OECD country with the highest shares of manufacturing in output and value added and this sector now represents approximately 50% of Korea’s total output and close to 30% of value added. Most other countries recorded manufacturing share reductions with the largest output share reductions in Luxembourg, Portugal and Japan and value added share reductions in Luxembourg, United Kingdom and Ireland. 6
To refine the analysis of specialisation patterns, manufacturing output can be decomposed by technology content.7 Figure 2.6 indicates that most of the OECD countries have increased their share of medium-high and medium-low technology manufactures. The contribution of low technology manufactures (mostly consisting of food, textiles, leather, footwear, and paper products) has decreased though contribution of medium-low technology sectors (consisting of petroleum products, basic metals and basic metal products, and repairing big capital equipment such as ships and boats) increased across all the OECD countries and of medium-high technology sectors (chemicals, big machinery and equipment mostly used for transport) increased in most OECD countries. The contribution of high technology manufactures (capital equipment of high precision and pharmaceuticals) has been increasing in some OECD countries (Hungary, Czech Republic, and Portugal) and decreasing in others (e.g. United States and United Kingdom). These trends suggest the shrinking shares of manufacturing in total output do not reflect a general withdrawal from manufacturing in the OECD area but rather withdrawal from low technology segments of the manufacturing sector.
Figure 2.6. Contribution to manufacturing output by technology content Panel A. High-technology manufacturing
Panel B. Medium-high technology manufacturing
Panel C. Medium-low technology manufacturing
Panel D. Low technology manufacturing
Source: OECD STAN Database.
Throughout the investigated period shares of services in output and value added have been generally higher than those for agriculture and manufacturing though there are some exceptions to this rule, namely in the group comprising Korea and the formerly centrally planned members of the OECD (Poland, Hungary, Czech Republic and Slovak Republic). With the exception of the Czech Republic and the Slovak Republic, the share of services increased in all OECD countries, especially when value added is considered. These figures suggest an unquestionable transformation to a largely services-driven economy for the majority of the OECD countries. In 2007, shares of services in output ranged from just below 40% in Korea (approximately 55% of value added in Norway) to close to 85% of output and value added in Luxembourg.
Evolution of employment shares in each of the three broad sectors confirms the transition of the OECD countries into service-oriented economies (Figure 2.7). In fact the shift away from agriculture and manufacturing is even clearer than that suggested by the output and value added data: with almost no exception all OECD economies show an increase in services share of employment and decreasing share of agriculture and manufacturing. The United States, United Kingdom, and the Netherlands display shares of employment in services above 80% for 2007. Portugal and Korea, the two countries with the lowest employment shares of the services sector (of 42 and 45%, respectively) in 1985, show the biggest increases to 60 and 68%, respectively.8 An inverse pattern is observed for both manufacturing and agriculture as the shares of employment in these two sectors in all OECD economies have seen sharp decreases. Still, while the shares of employment for manufacturing remain in the two digit range in 2007, employment shares of agriculture are below 5%.
Despite a declining trend, the Czech Republic, the Slovak Republic, Hungary and Poland maintain the highest employment shares of manufacturing, ranging from 28% to slightly lower than 20%, across OECD countries. Together with what was observed for output and value added, this suggests a corresponding expansion of services and manufacturing in the Eastern European OECD economies. In addition to the efficiency improvements that arose from the transformation of their domestic economies this could also have been driven by an inflow of foreign manufacturing drawn to the abundance of inexpensive labour, followed by the inflow of supporting services firms from more developed economies, therefore, boosting shares of both services and manufactures.
Labour costs provide a complementary indication of the importance of services in the OECD countries; the sector accounts for the highest, and increasing, share of total labour costs (Figure 2.8). Dynamic productivity growth in the services sector resulted in reallocation of labour towards this sector and triggered a general increase in average labour productivity across all OECD countries. Moreover, increasing employment and labour cost shares of services suggest a constantly mounting influence of the sector on factor and, indirectly, product markets.
Figure 2.7. Contribution to employment in the OECD countries Panel A. Agriculture3
Panel B. Manufacturing13
Figure 2.8. Contribution of services to labour costs in the OECD countries, selected years3
a) Germany, 1991; New Zealand, 2004; Japan, 2005; Australia, 2006; France, 2006; Poland, 2006; Portugal, 2006; Sweden, 2006; United Kingdom, 2006.
Source: OECD STAN Database.