Finance wages soar while manufacturing flatlines

George Osborne promised Britain a “march of the makers” – but as yet, there is little sign that a resurgence of manufacturing is helping the economy to rebalance.

It would be naïve to assume that manufacturing in the UK will return to its former glory in the foreseeable future. As late as 1980, manufacturing represented around 30% of the UK’s gross value added (GVA) and employed around a quarter of the workforce. It now represents around 12% of GVA, and employs less than 10% of the workforce.

Of course, a shrunken manufacturing sector does not necessarily imply poorer performance. Retaining high-skilled manufacturing jobs, as low-skilled jobs migrate to emerging economies, would mean higher manufacturing productivity and a focus on “advanced” production. Such a transformation would also improve the tradability of the UK’s manufacturing output and enhance the dispersion of skills and technology from manufacturing to other areas of the economy. As the government’s 2011 “plan for growth” acknowledged, around 40% of UK manufacturing firms are involved in technological innovation – much lower than Germany at over 70%, and behind Sweden and Finland at around 50% each.

The growth plan also promised a reduced reliance on financial services. In light of this, the SPERI British Political Economy Brief, Pay in Manufacturing and Finance, examines pay levels across different sectors to assess the extent to which rebalancing is evident so far. Broadly speaking, the news is not good.

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Image: Paul