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Why manufacturing declines, at least in relative terms

Data on the stages of economic development

As economies develop from their agrarian roots into modern societies, they invariably go through a similar transition.

  • Agriculture: First, everyone works in the primary sector—agriculture—simply to survive. Food comes first.
  • Industry: As subsistence farming becomes more productive through innovation, some labor is free to engage in other productive activities. And this secondary, industrial sector rises in importance, with manufacturing as a major component. Consider the Industrial Revolution!
  • Services: Finally, as productivity in the industrial sector also improves, labor can be devoted more and more to the tertiary, services sector. It doesn’t produce anything tangible, but services are clearly still useful.

The FRED graphs in this post show the fraction of the labor force devoted to each of these three sectors for five countries: Japan, Chile, the United States, South Africa, and Mexico.

Some of the transitions from one sector to the next can be seen even in the relatively short period that FRED data can cover. It’s more noticeable, however, if you compare countries: The more advanced countries have a small primary/agricultural sector and a large tertiary/services sector. The importance of industry (e.g., manufacturing) really depends on the state of the economy. Poorer countries (with less data available from FRED) and richer countries both have much less industry; it’s the middle-income countries that have a fair share.

How these graphs were created: Start from the OECD Main Economic Indicators by country release table, click on the country of choice, find the labor survey (if available), select quarterly seasonally adjusted data, check the three sectors, and click on “Add to Graph.” Finally, from the “Edit Graph” panel, use the “Format” tab to chose graph type “Area” with “Percent” stacking. Sample dates may need to be adjusted in cases of missing data.

Suggested by Christian Zimmermann.



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