Download Linkages Between Manufacturing and Services

The Twin-Engines of Growth in Singapore:
Employment Linkages and Structural
Changes in Manufacturing and Services
Prepared for
“2006 International Symposium on Contemporary Labour
Economics
Labour Markets Mobilization and Economic Development in
a Harmonious Society, with a Focus on Chinese Labour
Markets"
(December 16-18, 2006)
by
Assoc Prof Shandre M. T. and Tan Zhen Li
Introduction and Scope
• Emergence of the Services Sector Globally
• Structure of Sectors in Singapore’s Economy
Increasing GDP from services and manufacturing
Increasing importance of services in employment
• Linkages Between Manufacturing and Services: Twin Engines of
Growth (ERC’s Recommendations)
• Identification of Key Sectors and Employment Effects: InputOutput Tables
• Policy Conclusion
2
Evolving M&S Sector Globally
• Globalization – Open world market
• Progress of manufacturing and services sector
through promotion of export services
•Expansion of service sector role as intermediate
inputs
3
Gross Value-Added of Services
Global trends in Services
GVA trends
Share of Services in Total Gross Value-Added in 1990s
AAG rate of
Svc in 1990s
Share of
Svcs in late
90s
80.0%
Developed countries
70.0%
Australia
6.0%
66.7%
Germany
4.1%
61.1%
Japan
3.2%
57.6%
US
6.5%
62.9%
Singapore
10.2%
56.3%
Ireland
10.5%
56.0%
Korea
13.6%
45.4%
Mexico
22.0%
62.8%
60.0%
50.0%
40.0%
30.0%
Developing countries
20.0%
10.0%
0.0%
Australia Germany
Ireland
Japan
Korea
Early 90s
Mexico
Mid 90s
New
Singapore
Zealand
UK
US
Late 90s
4
Employment in Services
Global trends in Services
Employment trends
Share of Services in Total Employment in 1990s
AAG rate of
Svcs in 1990s
80.0%
70.0%
60.0%
50.0%
Developed countries
Australia
2.0%
68.0%
Germany
1.9%
58.9%
Japan
1.5%
57.4%
US
2.3%
67.6%
Singapore
3.8%
53.1%
Ireland (95-95)
7.1%
58.0%
Korea
3.6%
56.0%
Mexico
2.9%
49.1%
US
UK
Ne
w
Si
ng
ap
or
e
(9
799
)
Ze
al
an
d
M
ex
ic
o
Ko
re
a
Ja
pa
n
Ire
la
nd
(9
598
)
Developing countries
G
er
m
an
y
us
tra
lia
40.0%
30.0%
20.0%
10.0%
0.0%
A
Share of
Svcs in late
90s
Early 90s
Mid 90s
Late 90s
5
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
-2,000
AAG (Abs)
AAG (Rate)
Health & Social,
Community &
Personal
Services
Public
administration
and defence
Education
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
120000
100000
80000
60000
40000
20000
0
-20000
AAG (Abs)
Health & Social,
Community &
Personal
Services
Public
administration
and defence
Education
AAG (Abs)
Real Estate,
Business
Services & IT
Ireland (1995 to 1998)
Financial
Services
Health & Social,
Community &
Personal
Services
Public
administration
and defence
Education
Real Estate,
Business
Services & IT
Financial
Services
Transport,
Communications
and Logistics
Hotels and
Restaurants
100,000
80,000
60,000
40,000
20,000
0
Transport,
Communications
and Logistics
6000
4000
2000
0
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
Hotels and
Restaurants
12000
10000
8000
Wholesale &
Retail
Health & Social,
Community &
Personal
Public
administration
and defence
Education
Hotels and
Restaurants
Transport,
Communications
and Logistics
Financial
Services
Real Estate,
Business
Services & IT
Wholesale &
Retail
Singapore in 1990s
Wholesale &
Retail
AAG (Abs)
Real Estate,
Business
Services & IT
Financial
Services
Transport,
Communications
and Logistics
Hotels and
Restaurants
Wholesale &
Retail
Employment growth in Developing countries
Korea in 1990s
Global trends in Services
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
AAG (Rate)
AAG (Rate)
Mexico in 1990s
AAG (Rate)
6
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
Importance of services sector for
sustained growth of the Asian countries
Demand for services is highly income elastic that is the demand for
services increases concurrently as the income for Asian countries
rises
Demand for services such as education, health care,
telecommunication services, and travel services are
expected to expand faster than the demand for
manufactured and agricultural goods
Services activities are becoming an importance source of export
growth for the Asian countries. Services activities are becoming
the faster growing cross-border and FDI activities in East and
South-East Asia for the past decade
7
Key Trends in Singapore Economy
Table 1: Key Macroeconomic Indicators: 1999-2005
1999
2000
2001
2002
2003
2004
2005
7.2
10.0
-2.3
4.0
2.9
8.7
6.4
Manufacturing
13.6
15.3
-12.8
8.4
3.0
13.9
9.3
Services
6.0
9.0
1.9
4.0
3.3
7.6
6.0
Construction
-8.8
-1.7
-1.2
-14.0
-9.0
-6.1
-1.1
Real GDP (2000 market
price & % change)
Share of Gross Value Added (%)
Manufacturing
23.1
26.8
23.7
25.8
26.3
27.7
27.3
Services
63.6
61.9
64.5
63.5
63.4
63.0
63.8
Construction
7.9
6.3
6.1
5.4
5.0
4.3
3.7
Others
5.1
5.0
5.7
5.3
5.3
5.0
5.2
Manufacturing
21.0
20.8
18.8
18.2
17.9
17.3
21.4
Services
71.1
65.5
74.2
75.0
75.6
76.3
69.6
Construction
6.9
13.1
6.1
5.9
5.6
5.5
8.1
Others
1.0
0.6
0.9
0.9
0.9
0.9
0.9
3.5
3.1
3.3
3.6
4.0
3.4
3.2
Employment Share (%)
Unemployment rate
(average)
Source: Thangavelu and Toh (2005)
Services sector includes: Wholesale and Retail trade, Hotels and Restaurants, Transport and
Communication, Financial Services, Business Services, other services
8
Structure of Sectors in the Singapore
Economy
Increasing GDP from Manufacturing and Services Sector – potential
areas of growth
Nominal GDP by Industry
120000
100000
80000
2000
2001
in Millions 60000
2002
2003
40000
2004
20000
0
Manufacturing
Construction
Services
Others
9
Source: SingStat, 2005
Share of Electronics to Manufacturing Sector in Singapore: 1990-2004
70.00
60.00
50.00
40.00
Output
Manu Exports
Manu Emply
30.00
20.00
10.00
0.00
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
10
Increasing Importance of Services in Employment
Increasing Share of Services in Employment, Decrease in
Manufacturing
70
60
50
40
30
20
10
Other
Services
Construction
0
1995
2000
2004
Manufacturing
Share of
Employment
Source: MSRD, MOM
Are there linkages between the two to account for such trends?
11
Product Composition of Singapore’s Exports (%), 1994 - 2005
Exports
1994
1999
2003
2005
Electrical & Electronic components and
Machinery
45.6
55.3
50.8
58.8
Manufactured Goods
6.0
4.3
3.7
4.6
Chemicals & Pharmaceutical
5.7
8.0
11.8
11.4
Fuels and Petroleum Products
9.5
7.9
11.1
15.0
Textiles & Clothing
1.4
2.0
1.0
1.0
Transport Equipment
18.3
11.0
10.3
1.6
Food, Beverages, Crude Materials
4.4
3.3
1.9
2.2
Miscellaneous Manufactures
9.1
8.2
9.4
5.4
Export of Goods (values S$)
$145,079m
$196,004m
$281,699m
$386,919m
Export of Services (values S$)
$55,474m
$40,158m
$63,157m
$85,435m
Transportation
53.2
40.5
38.4
34.9
Travel
19.8
19.3
13.0
11.1
Financial & Insurance
0.7
5.9
8.7
9.4
Other Services
26.3
34.3
39.9
44.4
Source: Ministry of Trade and Industry, Economic Survey of Singapore, various issues; Yearbook of Statistics, Singapore, various issues
12
Importance of Linkage between
M&S – Twin Engines of Growth
ERC’s Recommendation for twin engines of growth:
“A strong manufacturing engine contributes to growth of
services, and likewise, a strong services sector makes
factories in Singapore more competitive...
Manufacturing will become more knowledge and research
intensive...
Services will become more exportable and its quality will be
raised…”
13
Relationship between M&S
Usage of intermediate services
Demand for service/manufacturing inputs
Eg. to complement manufacturing production or service
implementation
Splintering”: outsourcing of business-related services
Eg. R&D, finance, logistics
Change in Employment Structure
Decline in manufacturing employment, shift to service sector
“between effect”
Increase in non-production employment or indirect labour
within manufacturing itself
“within effect”
14
Relationship Between M&S
Demand Shares of Services and Manufacturing Outputs – 2000 (In per cent of
total output per sector, data from I-O Tables 2000)
Domestic
Final Demand
11.2%
31.8%
35.2%
18.9%
Exports
Services
Domestic
Final Demand
7.0%
Intermediate
Input
6.2%
Other Sectors
Manufacturing
15.1%
69.1%
Exports
Manufacturing is highly export-oriented
Services allocates more of its intermediate outputs back into its own industry
Linkage between services and manufacturing is evident in intermediate inputs
used reciprocally by both sectors
15
Input-output analysis
Provides a complete picture of the flows of
products and services in the economy for a given
year
Illustrate the flows between various industries and
also between industries and the final demand
sector
These linkages allow estimates to be made of the
extent to which industries contribute directly
and indirectly to the various final demand
sectors within a country
• Greenhalugh and Gregory (2001) – UK
• Franke and Kalmbach (2005) – Germany
• Cho, Shon and Geoffrey (2000) – Korea
• Paolo and Maliciani (2005)
16
Methodology and data sources
Classify data from 1995 and 2000 input-output tables into
18 aggregated industrial sectors (over 150 industries)
Compute output multipliers
Compute employment multipliers for 1995 and 2000 using
the output multipliers and employment data from
Labour Force Survey data
17
Framework from Annex B
Computation of output multipliers
Expressing in matrix form, we have:
X = AX + F
X (1-A) = F
X = (I–A)-1F
Where I denotes the 4X4 identity matrix and
(I–A)-1 is the Leontief output multiplier matrix
Computation of employment multipliers
Compute the total output figures, (I–A)-1final demand
Compute the employment to output ratio, ei
Multiply every entry in the (I–A)-1 matrix by ei will yield the
corresponding employment multiplier
18
Methodology and data sources
Use of the closed model
• Treats private consumption expenditure in final demand
as an endogenous variable as data on personal
disposable income is not available
• Includes the Keynesian multiplier effect and Leontief
multiplier effect
• Results in larger employment multipliers
• Enables us to determine the total multiplier effect on
output and employment
19
Share of Intra and inter-industry jobs created arising from a change
in final demand in each industry (95, 00 & 04)
Increase in Intra-industry
Inter-industry
Intra-industry Inter-industry jobs Intra-industry
Inter-industry
final
jobs created(%) jobs created(%) jobs created(%) created(%) in jobs created(%) jobs created(%)
demand in
in 1995
in 1995
in 2000
2000
in 2004
in 2004
Food
40.84
59.16
39.92
60.08
42.19
57.81
Textiles
69.45
30.55
55.87
44.13
52.3
47.70
Paper
59.29
40.71
54.65
45.35
47.96
52.04
Petrochem
38.74
61.26
22.06
77.94
23.46
76.54
Fab Metal
43.76
56.24
36.74
63.26
34.22
65.78
Mach
58.42
41.58
53.28
46.72
52.21
47.79
Electric
49.54
50.46
38.88
61.12
32.05
67.95
Electronic
53.79
46.21
35.66
64.34
31.34
68.66
Medical
62.26
37.74
49.9
50.1
49.86
50.14
Trans
54.47
45.53
49.93
50.07
54.77
45.23
Other Mfg
54.96
45.04
52.74
47.26
49.08
50.92
Commerce
54.72
45.28
45.21
54.79
44.48
55.52
Comms
51.77
48.23
41.48
58.52
40.63
59.37
Finance
44.15
55.85
36.55
63.45
36.64
63.36
RE & Biz
51.76
48.24
54
46
55.55
44.45
CSPS
57.44
42.56
51.95
48.05
53.46
46.54
Construct
68.03
31.97
68.46
31.54
60.6
39.40
Others
66.84
33.16
63.99
36.01
64.65
35.35
20
Intra & inter-industry effects
Inter-industry jobs created are higher for manufacturing and
services industries as compared to industries like construction
and others
Increase in
IntraInterE.g.
final demand industry jobs industry jobs
in
created(%) created(%)
in 2004
in 2004
Electronics
31.34
68.66
Finance
36.64
63.36
Construction
60.60
39.40
Others
64.65
35.35
21
Intra & inter-industry effects
The employment spill-over effects from individual mfg industries to
the services sector as a whole is stronger than that from the
services industries to the mfg sector
Increase in Share of total jobs (%) created in
final
2004 in
demand in Intraindustry
Inter-industry
Own Manufacturing Services
industry
sector
sector
Petrochem 23.46
10.96
51.83
Electric
32.05
10.08
47.62
Electronic 31.34
8.88
50.21
Commerce 44.48
5.08
43.15
Comms
40.63
9.30
42.31
Finance
36.64
4.24
50.52
22
Intra & inter-industry effects
The employment spill-over effect within the services sector is higher
as compared to that within the manufacturing sector
Increase in Share of total jobs (%) created in
final
2004 in
demand in Intraindustry
Inter-industry
Own Manufacturing Services
industry
sector
sector
Petrochem 23.46
10.96
51.83
Electric
32.05
10.08
47.62
Electronic 31.34
8.88
50.21
Commerce 44.48
5.08
43.15
Comms
40.63
9.30
42.31
Finance
36.64
4.24
50.52
23
Structural changes in employment creation
For the period from 1995 to 2000 and 2000 to 2004, there was a
decrease in the share of jobs created within the same
industry for most of the mfg industries
This could reflect the move to higher VA industries and
Outsourcing / production fragmentation
Increase
in final
demand in
Textile
Petrochem
Fab Metal
Mach
Electric
Electronic
Medical
Finance
RE & Biz
CSPS
(4)
Change in share of total jobs
created in (1995 and 2000)
Own
Manufactur- Services
industry
ing sector
sector
-13.59
2.67
9.03
-16.67
2.74
11.30
-7.02
1.09
4.99
-5.15
1.61
3.04
-10.66
1.48
7.68
-18.12
2.21
13.48
-12.35
1.55
8.97
-7.60
0.23
7.09
2.23
-0.16
-1.49
-5.49
0.97
3.52
(5)
Change in share of total jobs
created in (2000 and 2004)
Own
Manufactur- Services
industry
ing sector
sector
-3.57
-0.36
3.43
1.40
-0.38
-0.31
-2.52
-0.47
2.82
-1.07
-0.25
1.36
-6.83
0.17
5.82
-4.33
-0.28
4.22
-0.04
-0.39
0.64
0.09
-0.27
0.57
1.55
-0.52
-0.38
1.50
-0.08
-0.73
24
Structural changes in employment creation
Increase in
final
demand in
Petrochem
Electronic
Medical
Commerce
Comms
Column (4)
Column (5)
Change in share of total Change in share of total
jobs created in
jobs created in
(1995 & 2000)
(2000 & 2004)
Own
Mfg Services Own
Mfg Services
industry sector sector industry sector sector
-16.67 2.74
11.30
1.40 -0.38
-0.31
-18.12 2.21
13.48
-4.33 -0.28
4.22
-12.35 1.55
8.97
-0.04 -0.39
0.64
-9.51 0.91
7.55
-0.73 -0.05
0.97
-10.29 1.80
7.29
-0.85 0.91
0.26
Generally, the effects of the restructuring process on
employment seem to be levelling off to a steady state
equilibrium
25
Policy Implications & Conclusion
• Our findings reveal the presence of strong employment linkages
between different sectors of the economy, especially from the
manufacturing to services sectors
• It is suggested that jobs created arising from such employment
linkages tend to be of higher skills content
– In this respect, implementation of flexible labour market
policy and initiatives to upgrade skills of workers will play
a crucial role to create flexibility in the economy
• The aim of Workforce Development Agency (WDA) to enhance
the productivity and employability of the workers through
training, retraining, and retaining workers in the labour
market
26
Policy Implications & Conclusion
Two key areas of concern as the industrial structure matures
and companies fragment its components and production line:
•The displacement effect of outsourcing on wage gap (skilled and
unskilled wages) and on employment has not been thoroughly
investigated in the economy
•Sustainable productive improvements of the Singapore economy is
the development of strong small and medium size enterprises (SMEs):
–Formation of a cluster of SMEs that support the activities of the
larger conglomerates  These enterprises will provide employment
to high VA workers providing commodities and services demanded by
companies within and beyond Singapore
27
Thank you
28
Percentage change in share of employment in various sectors by
occupational classification
Overall
Manufacturing
Wholesale and
Retail Trade
Hotels and
Restaurants
Transport,
Storage and
Communications
Financial
Intermediation
Real Estate,
Renting and
Business
Activities
Community,
Social and
Personal Services
Agriculture,
Mining &
Quarrying and
Utilities
[1]
Legislators,
Senior
Officials
and
Managers
[2]
Professionals
[3]
Technicians
and Associate
Professionals
-2.60
2.05
2.26
8.59
4.58
8.66
[4]
NonProduction
Workers
(Combining
[1], [2] and
[3])
1.62
6.53
-0.03
-13.58
-14.76
1.94
33.19
-10.02
[8]
Plant and
Machine
Operators
and
Assemblers
[9]
Cleaners,
Labourers
and Related
Workers
[5]
Clerical
Workers
[6]
Service
Workers
[7]
Production
Craftsmen
and Related
Workers
-2.13
0.06
-2.04
14.22
-8.59
-6.20
-11.85
-11.26
11.42
24.39
-6.86
8.07
23.48
2.85
-11.88
18.10
9.40
6.48
-5.12
-4.46
36.80
-15.47
-0.52
61.80
-4.68
-4.75
2.55
-9.09
44.40
43.50
10.16
-1.59
1.61
0.34
-0.09
0.49
-9.31
-35.35
2.18
14.37
-15.31
19.78
3.18
2.66
-3.34
-35.46
-85.28
-29.41
-31.14
-1.68
-9.08
-1.74
-4.63
0.36
12.00
29.76
-14.51
17.08
-11.10
-2.07
7.06
1.51
-2.59
-6.04
-20.58
6.25
3.37
29