This shift will be manifestated either in a growing wage gap between skilled and unskilled workers or in rising unemployment of the latter. The theory is elegant. But empirical evidence suggest the relative prices of goods produced by unskilled labour have not fallen, probably because imports from countries like China have replaced imports from countries like South Korea, rather than production in advanced countries. Morever, marchandise imports from developing countries equal only 9-8 per cent of total output in advanced economies. These falls parallel declines in the share of manufacturing in GDP at current prices, suggesting that the reason for the diminished role of manufacturing in employment is the failure of output to grow.
Appearances are misleading.
At constant prices there has been very little decline in the share of manufacturing in total output. The faster rate of growth productivity in manufacturing than in services is, instead, leading to a reduction of relative prices of manufactured output, as well as of employment in manufacturing per unit of output. Thus, between 1971 and 1994, output of manufacturing rose at 2.5 per cent a year in advanced economies, but output per person at 3.1 per cent. For services, the figures were 3.3 and 1.1 per cent respectively. The share of employment in manufacturing was bound to decline, as it has long done in agriculture.