To analyse how the structure of the UK economy has changed, it is necessary to see how the relative size of the various sectors of the economy have changed over time. The size of these sectors can either be measured by the percentage of Gross Domestic Product (GDP) they contribute, or by how many inputs they use, which can either be the amount of capital or the amount of labour employed. Of the two, labour is more commonly used for analysis, as there is obviously a lot of interest in the employment patterns of the workforce. When output is measured, it is usually measured at factor cost, as to use market prices would be to include the distorting effects of taxes and subsidies.
The primary sector as a whole in 1964 accounted for 5.8% of GDP. Although it declined over the next decade, reaching 4.2% of GDP in 1973, the discovery of North Sea oil caused to increase to 6.7%. By the recession of the early 1990s, though, it had plummeted to 3.9%, and by 1995 had increased only to 4.2%. When these figures are broken down, it is clear that the profits from the oil had dried up by 1990.
The largest sectorial change has occurred in the secondary sector. In 1964 this accounted for 40.8% of the UK’s GDP, but, despite rising slightly in 1969, plummeted to 28.2%. As will be discussed later, the decline of manufacturing is the part of this sector that has caused the most contention.
As the percentage share of this sector has declined, the tertiary sector has seen the larges increase. Overall, it accounted for 53.8% of GDP in 1964, but by 1995 it was responsible for 67.6% of UK output. To express this another way, it contributes just under 2.5 times as much GDP than the secondary sector does, and twice as much GDP as the goods sector does in total. The sector as a whole has been increasing, although individual components (especially spending on social service and defence) have admittedly either dropped slightly or seen minor fluctuations.
These structural changes can be seen in a different light if the employment figures are used, instead of the contribution to GDP. The percentage of people employed in the primary sector has plummeted from 5.1% in 1964 of the total workforce to 1.7% in 1995. The drop in the secondary sector is more dramatic: from 46.9% in 1964 to 22.6% in 1995. The tertiary sector, though, has increased its employment from 47.8% in 1964 to 75.4% in 1995.
What is interesting about comparing the figures for employment per sector with those for GDP per sector is that in the both primary and secondary sectors, their share of the overall workforce has dropped by a larger amount than their contribution to GDP. This suggests that the remaining workers in these sectors are being more productive and producing more per man-hour than was previously the case, as a result in efficiency gains made by new technology. Agriculture, for instance, has seen its output rise by 80% between 1964 and 1995, but t he number of people employed in this field in 1995 was half the level it was in 1964.
The number of people leaving one sector has not all shifted to another. People, once made redundant, may remove themselves from the labour market, either indefinably through retirement, or through entering education for a time in order to learn new skills to enter a different market. This was not always the case. Until 1979, the flow of workers from one industry to another was roughly stable – the gains made by the tertiary sector were roughly equal to the losses made by the other sectors. Between 1979 and 1995, employment in the goods sector fell by 4.25 million, but rose by 3million in the tertiary sector. This led to a reduction in total employment at a time when the numbers of people either available to join the work force, or employed, was rising steadily.
As was mentioned earlier, the most noticeable change in the structure over time has been the decline in manufacturing, In 1954 it accounted for 35.4% of GDP, in 1964 29.5%, but by 1995 it only contributed 20.7% of GDP. Moreover, from employing 38.1% of the workforce in 1964 (about 8.9 million people), by 1995 only 18% of the workforce (roughly 3 million people) was involved in this sector. This dramatic decline has been the source of much discussion, both due to the question of its causes, and of whether it is a cause for concern.
Some have argued that it is merely part of the maturity of the economy, and thus is not a large cause for concern. Demand for the tertiary sector is very elastic. When their income is rising, they will switch their demand to the range of services provided by this sector, and away from manufacturing. It has been argued, though, that the data does not match this hypothesis. Demand for imports of manufactured goods has been rising faster than demand for domestically produced goods. A favourable exchange rate and the cheaper production costs from overseas, especially from developing countries, are likely to shift demand to the import sector. However, developing countries only accounted for 14% of manufactured imports in 1995.
Although the share of GDP produced by has dropped to around 20%, the actual volume of output produced has risen over the same period, albeit very slowly.
The argument for maturity is often linked to the view that a similar pattern as occurred in other advanced economies. According to the OECD, in 1995 the average share of manufacturing was also around 20%. However, although the trend can be seen in some countries, for instance Belgium, German, and the Netherlands, in others the trend does not exist, as in Canada, France, or the USA. This data must, of course, be taken at face value due to the fact that each country has its own specific economic and social conditions, but it still seems to contradict the maturity theory.
Certainly, the decline in manufacturing, especially the severe reduction in employment in this sector, has caused regional differences to become increasingly apparent in the UK. Much of the manufacturing base existed in north of England, along with the coal industry which has also rapidly collapsed, and as a result of this unemployment in these regions is noticeably higher than in the South, where the tertiary sector is more predominant. It may be hard for some of the unemployed to learn new skills or move to a different region, thus entrapping them.
It has been suggested by Greenhalgh the decline in manufacturing has had an effect on the rest of the economy which the raw data does not suggest. As an industry in the secondary sector, it takes inputs from the primary sector, from other firms in the secondary sector, and passes the goods on to the tertiary sector. It also uses skills from the tertiary sector, like financial services. The interconnection of these industries was such that Greenhalgh calculated that for every £1 spent on gross manufacturing output, £1.61 of employment income was created across all the sectors. In the tertiary sector, £1 spent on gross output created a mere £0.56 of employment income across all the sectors of the economy. This suggests that the economy relies on manufacturing and it sustains a far higher proportion of jobs than is first apparent. Thus, the decline could be said to be a cause for concern. However, although employment has dropped, as the output has risen slowly, it suggests that the remaining workers are more productive than before, which, as was said above, is probably due to new technology and production processes.
The UK economy has changed vastly since 1945, and the decline of manufacturing and the growth of the tertiary sector has been the most visible change.
