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Rethinking deindustrialization

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  • Bernard, Andrew B.
  • Smeets, Valerie
  • Warzynski, Frederic

Abstract

Manufacturing in high-income countries is on the decline and Denmark is no exception. Manufacturing employment and the number of firms have been shrinking as a share of the total and in absolute levels. This paper uses a rich linked employer-employee dataset to examine this decline from 1994 to 2007. We propose a different approach to analyze deindustrialization and generate a series of novel stylized facts about the evolution. While most of the decline can be attributed to firm exit and reduced employment at surviving manufacturers, we document that a non-negligible portion is due to firms switching industries, from manufacturing to services. We focus on this last group of firms before, during, and after their sector switch. Overall this is a group of small, highly productive, import intensive firms that grow rapidly in terms of value-added and sales after they switch. By 2007, employment at these former manufacturers equals 8.7 percent of manufacturing employment, accounting for half the decline in manufacturing employment. We focus on the composition of the workforce as firms make their transition. In addition, we identify two types of switchers: one group resembles traditional wholesalers and another group that retains and expands their R&D and technical capabilities. Our findings emphasize that the focus on employment at manufacturing firms overstates the loss in manufacturingrelated capabilities that are actually retained in many firms that switch industries.

Suggested Citation

  • Bernard, Andrew B. & Smeets, Valerie & Warzynski, Frederic, 2016. "Rethinking deindustrialization," LSE Research Online Documents on Economics 66441, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:66441
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    File URL: http://eprints.lse.ac.uk/66441/
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    References listed on IDEAS

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    1. Frederiksen, Anders & Westergaard-Nielsen, Niels, 2007. "Where did they go? Modelling transitions out of jobs," Labour Economics, Elsevier, vol. 14(5), pages 811-828, October.
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    3. Kiminori Matsuyama, 2009. "Structural Change in an Interdependent World: A Global View of Manufacturing Decline," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 478-486, 04-05.
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    Cited by:

    1. Erika Stracová & Richard Kališ, 2017. "Input-Output Analysis of Deindustrialization and Outsourcing," Department of Economic Policy Working Paper Series 011, Department of Economic Policy, Faculty of National Economy, University of Economics in Bratislava.
    2. Jacob Rubæk Holm & Christian Richter Østergaard, 2018. "The high importance of de-industrialization and job polarization for regional diversification," Papers in Evolutionary Economic Geography (PEEG) 1821, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised May 2018.
    3. Adam, Antonis & Garas, Antonios & Lapatinas, Athanasios, 2019. "Economic complexity and jobs: an empirical analysis," MPRA Paper 92401, University Library of Munich, Germany.
    4. Andrea Ariu & Florian Mayneris & Mathieu Parenti, 2018. "One way to the top : How services boost the demand for goods," Working Paper Research 340, National Bank of Belgium.
    5. Friesenbichler, Klaus S. & Glocker, Christian, 2019. "Tradability and productivity growth differentials across EU Member States," Structural Change and Economic Dynamics, Elsevier, vol. 50(C), pages 1-13.
    6. Ajayi, V. & Reiner, D., 2018. "European Industrial Energy Intensity: The Role of Innovation 1995-2009," Cambridge Working Papers in Economics 1835, Faculty of Economics, University of Cambridge.
    7. Alex Coad & Antonio Vezzani, 2017. "Manufacturing the future: is the manufacturing sector a driver of R&D, exports and productivity growth?," JRC Working Papers on Corporate R&D and Innovation 2017-06, Joint Research Centre (Seville site).
    8. Naudé, Wim & Surdej, Aleksander & Cameron, Martin, 2019. "The Past and Future of Manufacturing in Central and Eastern Europe: Ready for Industry 4.0?," IZA Discussion Papers 12141, Institute of Labor Economics (IZA).
    9. Garas, Antonios & Guthmuller, Sophie & Lapatinas, Athanasios, 2019. "The development of nations conditions the disease space," Working Papers 2019-09, Joint Research Centre, European Commission (Ispra site).
    10. Simone Moriconi & Giovanni Peri & Dario Pozzoli, 2018. "The Role of Institutions and Immigrant Networks in Firms’ Offshoring Decisions," CESifo Working Paper Series 7312, CESifo Group Munich.
    11. Alexis Grimm & Mina Kim, 2016. "FDI and the Task Content of Domestic Employment for U.S. Multinationals," BEA Working Papers 0136, Bureau of Economic Analysis.
    12. Keuschnigg, Christian & Kogler, Michael, 2018. "Trade and Credit Reallocation: How Banks Help Shape Comparative Advantage," Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181571, Verein für Socialpolitik / German Economic Association.
    13. Benjamin Gampfer & Ingo Geishecker, 2019. "Chinese competition: intra-industry and intra-firm adaptation," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 155(2), pages 327-352, May.
    14. Miroudot, Sébastien, 2019. "Services and Manufacturing in Global Value Chains: Is the Distinction Obsolete?," ADBI Working Papers 927, Asian Development Bank Institute.
    15. William W. Olney & Dario Pozzoli, 2018. "The Impact of Immigration on Firm-Level Offshoring," Department of Economics Working Papers 2018-02, Department of Economics, Williams College.
    16. Jacob Rubak Holm & Bram Timmermans & Christian Richter Ostergaard, 2017. "The impact of multinational R&D spending firms on job polarization and mobility," JRC Working Papers JRC108560, Joint Research Centre (Seville site).
    17. Falvey, Rod & Greenaway, David & Silva, Joana, 2010. "Trade liberalisation and human capital adjustment," Journal of International Economics, Elsevier, vol. 81(2), pages 230-239, July.
    18. Marcel P Timmer & Sébastien Miroudot & Gaaitzen J de Vries, 2019. "Functional specialisation in trade," Journal of Economic Geography, Oxford University Press, vol. 19(1), pages 1-30.
    19. R. Cezar & A. Duguet & G. Gaulier & V. Vicard, 2017. "Competition for Global Value Added: Export and Domestic Market Shares," Working papers 628, Banque de France.
    20. Nicholas Bloom & Andre Kurmann & Kyle Handley & Philip Luck, 2019. "The Impact of Chinese Trade on U.S. Employment: The Good, The Bad, and The Apocryphal," 2019 Meeting Papers 1433, Society for Economic Dynamics.
    21. Andrea Ariu & Florian Mayneris & Mathieu Parenti, 2016. "Providing Services to Boost Goods Exports: Theory and Evidence," Working Papers ECARES ECARES 2016-43, ULB -- Universite Libre de Bruxelles.

    More about this item

    Keywords

    manufacturing firms; industry switching; employment; skill composition; firm performance; job separation;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods

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