Digitisation
A major reason for this phenomenon is the shift in demand towards service products (see chapter 3). As a result, the service sector’s shares of total VA and employment have been constantly growing. This effect is intensified by higher productivity gains in manufactur-ing. Furthermore, service activities in industrial companies increase relative to pure manu-facturing activities. Fewer workers are involved in classic industrial production activities.
However, the deindustrialisation process is often overstated. Manufacturing is more relevant for the economy than its share in total VA suggests. In this chapter, the key mes-sage that industry and services become even more integrated is illustrated with different facts. Our analysis highlights the function of manufacturing as the hub of the economy, i. e. the organisational core of value chains which integrates intermediates from other sec-tors into its products. The most important message is that industry should not be seen as a single branch, but as a “Joint Industry Service Sector”.
4.1.1 Industry spillovers to the total economy
Industry plays a vital role in value chains, is an important market for suppliers from other sectors and creates significant spillovers to other sectors. This is illustrated in this subsection by explaining
•
how industry serves as a market for other sectors;•
that this role of industry is particularly important for SMEs from the service sector;•
that industry and other sectors (mainly services) are cooperating in Joint Production and that a Combined Sector of industry and Joint Production should be looked at to evaluate the true relevance of industry;•
that due to this symbiosis between industry and other sectors, manufacturing gene-rates significant multiplier effects for other sectors; and•
how industry as a hub is also strongly linked to other sectors across borders in Europe.Methodological remarks
At the outset, some methodological remarks are useful. Industry’s role as a hub for the economy can be illustrated by input-output tables. To understand the following remarks and figures, it is helpful to know which components of manufacturing output are included:
Imported intermediates from manufacturing and other sectors supplied to manufacturing
+ domestic intermediates from manufacturing and other sectors supplied to manufacturing
= overall intermediate inputs of manufacturing + taxes, subsidies, etc.
+ VA of manufacturing
= output of manufacturing
In this study, the World Input-Output Database (WIOD) is used. It provides data for 40 countries and 38 sectors (intermediate inputs, VA, exports, imports as well as wage
bills, working hours, investments) for the years 1995 to 2011.14 Thereby, national and cross-border value chains and production networks can be illustrated. Furthermore, spill-over effects and multipliers can be calculated in a consistent way.
Service integration
Due to an exchange of intermediates, the manufacturing sector is closely linked to other sectors. This can be demonstrated by several analyses based on input-output tables:
•
In 2011, each euro output of the manufacturing sector in the EU-27 contained 34 cents of intermediates from other sectors.15 Another 35 cents came from interme-diates from other parts of the manufacturing sector. The remaining share of VA is about 27 cents per euro (Figure 4-2).16•
The share of suppliers of intermediates from other sectors has increased: in 2000 it was 32 cents.Industry also sells goods and services from other sectors. This is the first significant integration function of the manufacturing sector. A more detailed analysis shows that
14 The WIOD has been developed and made available in the course of an EU research project headed by Marcel P. Timmer (University of Groningen). These data tables have been constructed in a clear conceptual framework on the basis of offi-cially published input-output tables in conjunction with national accounts and international trade statistics. In addition, the WIOD provides data on labour and capital inputs and pollution indicators at the industry level that can be used in conjunc-tion with enlarging the scope of possible applicaconjunc-tions. The WIOD is very useful because for the first time data are available in a matrix structure of countries and sectors on a consistent and timely basis. The newest data for 2011 have been available since mid-November 2013. Additional information is available in Timmer et al. (2012) or at http://www.wiod.org.
15 These results are calculated based on the world input-output database. The weighted averages of all Member States are presented as EU-27 values; effects of trade within the EU-27 are included.
16 Four cents of every euro’s production value is spread over taxes, subsidies and statistical adjustments.
Manufacturing
Missing shares to 100 per cent are own VA (27 per cent) and taxes, subsidies and statistical adjustments (4 per cent).
Source: WIOD, 2013; own calculations
Intermediate input share for one unit of
manufacturing production
Figure 4-22011, in per cent
these supplies mainly come from the service sector. For that purpose, the 35 sectors of the input-output tables are classified in ten groups.
•
In 2011, each euro’s worth of production in the manufacturing sector contains 26 cents from intermediates in the service sector and 9 cents from other sectors such as con-struction or agriculture. This highlights the connection of the manufacturing sector particularly to the service sector.•
The share of services in industrial products has increased slightly: in 2000 the share amounted to around 23 cents, in 1995 to around 22 cents.The role of SMEs
An efficient economy needs a good mix between SMEs and larger companies. SMEs are often referred to as the backbone of the economy because they significantly contribute to industrial value chains. Before going into detail, some core data about the importance of industrial SMEs are provided. SMEs are companies with up to 249 employees, which corresponds to the EU’s official definition (Table 4-1).