Wednesday 9 April 2014

One graph says more than 1000 words of policies

USA and EU are talking about reindustrialisation efforts which not only aims to support and grow the share of industry in their economy, but also the (re)-creation of jobs within industry. With claims like: "Every new job in industry creates five new jobs in related services" these efforts are already contradictory: by creating new jobs in industry, the effect is that the share of employment in industry if falling even more because five more new service jobs will be created. Furthermore, since it is unlikely that each new industry job has a productivity of more than five times a service job, also in terms of share of GDP the industry is losing. So by growing and supporting industry, their share will become smaller.

One graph that explains the true and irreversible trends of the share of industry over time. It does not mean that industry if becoming irrelevant: we will still need goods in the future the same as we need to eat and drink from agriculture. It just means that the growing share of the service economy is irreversible. This is due to the success of industry: by ever increasing productivity there are less people needed to produce more and more goods for a decreasing price. Just as agriculture has become a small part of economy, because it is so successful: less people are employed in agricultural sector to feed a nation and less percentage of income in rich countries is spend on food. The same will be the case for manufacturing: less people will be employed and a smaller share of income will be spend on actual goods.

Here the graph:


UPDATE 2nd Graph for USA:

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