Employment manufacturing by technology in Canada, TL3 regions

Manufacturing, a cornerstone of economic growth and development, has undergone profound changes in recent decades, reshaping employment patterns, trade dynamics and regional disparities.This report offers new insights into and analysis of the structure of manufacturing in rural regions across OECD countries, providing guidance and recommendations on how these regions and their manufacturing sectors need to continue to adapt to these and future changes.Over the past two decades, manufacturing employment has declined in OECD economies due to factors such as outsourcing, globalisation and automation.This shift has led to an increasing focus on services, making up around 70% of the gross value added in OECD countries.*Metropolitan regions have been better placed to reap the benefits of this transformation, enjoying productivity gains resulting from agglomeration effects.In contrast, with their thinner and more fragmented internal markets, rural regions have more limited opportunities for services sector productivity growth.However, rural regions have comparative advantages in manufacturing, often by virtue of the very factors that weigh down on their service productivity, such as low density and availability of land.With new shifting patterns emerging in international production networks and global value chains following the COVID-19 pandemic and Russia's war of aggression against Ukraine, many countries are now embarking on historically high investment programmes and new industrial policies, with increasing emphasis on leveraging the potential of rural manufacturing.This report delves into the transformations that have occurred in manufacturing across OECD rural regions over the past two decades, shedding light on their role, performance, enablers and bottlenecks.Specifically, it provides valuable insights into the challenges and opportunities faced by rural manufacturing in the context of climate change, demographic shifts, digitalisation and evolving global trade patterns.Through the Regional Development Policy Committee (RDPC) and its Working Party on Rural Policy (WPRUR), the OECD has committed to addressing regional disparities, fostering innovation in rural areas and supporting regions in transition.The Future of Rural Manufacturing combines quantitative analysis based on granular data of manufacturing trends across OECD rural regions with in-depth case studies conducted in 12 regions of France, Germany, Italy and Slovenia.It also benefits from foresight and futures workshops involving experts and policy makers from OECD countries.The WPRUR approved this report on 27 September 2023.*OECD (2023), "Value added by activity" (indicator), https://doi.org/10.1787/a8b2bd2b-en(accessed in October 2023). Manufacturing remains an important driver of jobs and growth in OECD rural economiesManufacturing contributes substantially to rural jobs.This report finds that in 2018, around 1 in 5 jobs in rural areas were in manufacturing.At the same time, despite rural regions making up only 28% of the OECD population, rural regions accounted for nearly half (48%) of manufacturing jobs in the OECD.Across several rural places, the role of manufacturing can be even greater.In the region of Tuttlingen, Germany, for example, manufacturing employment accounted for almost half (47.5%) of the region's workforce in 2019.Moreover, manufacturing remains a significant employer even in many regions that have seen large falls in manufacturing employment over the last two decades.For example, the traditional textile manufacturing region of Biella, (in the northern region of Piemonte, Italy, still had 1 in 4 people employed in manufacturing in 2019, despite its share falling by 15 percentage points since 2000.Furthermore, manufacturing is an important driver of growth in rural economies.The manufacturing sector's direct contribution to rural GVA increased in OECD rural regions from 18.5% to 21.1% from 2000  11 THE FUTURE OF RURAL MANUFACTURING © OECD 2023 to 2019 and the sector also supports a significant proportion of upstream service sector jobs, including in metropolitan regions.But manufacturing also sustains jobs in services through other indirect channels, including induced effects (i.e.spending of manufacturing workers on services) and through the use of produced capital in the production cycle.Estimates for the United States (National Association of Manufacturers), for example, reveal that for every job in manufacturing, 4.4 additional jobs were sustained in other sectors. 2 Between 2000 and 2019, 92% of rural regions saw a productivity increase.Amongst these, close to two-thirds of them (58% or 449 of the 769 OECD rural regions) also saw increased output.Productivity increases were also driven by contractions in employment.Amongst the rural regions that experienced productivity gains, 63% also experienced employment losses in manufacturing.In rural regions, however, this share was lower (63%) than in large metropolitan areas (76%). Rural regions have a diverse ecosystem of manufacturing activitiesRural regions contain a diverse range of actors in the manufacturing ecosystem.These range from firstand second-stage processing firms of agri-food products, entrepreneurs bringing innovations to remote areas, medium-sized family businesses and large-scale multinationals, amongst others.In a global marketplace, manufacturing activities in many OECD rural places no longer enjoy the same scale of competitive advantages due to low labour costs and thus need to find ways to differentiate.One way of product differentiation is through brand and quality.These have been a marker of success in some rural regions for centuries and play a critical role in forming the fabric and identities of individuals.Before industrialisation, manufactured goods in some rural places were produced by craftsmen and artisans working in small workshops dispersed throughout the territory.Many have continued to specialise in these activities and thus have developed an in-depth knowledge of these industries.Whether this be Italian leather, pottery from Karatsu, Japan, or Swiss watches, this form of manufacturing contributes to cultural heritage on the one hand and to regional exporting activity on the other.Differences in local comparative advantages will drive locational choices for larger firms looking to set up new manufacturing businesses.These include factors such as labour costs, the regulatory environment, skills, accessibility to markets, communications infrastructure and geographic location (e.g.proximity to large manufacturing hubs), many of which have been instrumental in shaping manufacturing pathways in Central Europe.For example, on average, manufacturing employment shares in Central Europe were significantly higher than across many OECD and European Union economies.In the Czech Republic, the average share of manufacturing employment was 30% across regions in 2019; in Hungary and Slovenia, it was around 24% and in Bulgaria, Estonia, Poland, Romania and the Slovak Republic, it ranged between 20% and 23%, against the OECD average of 15.5% during the same year. The manufacturing sector is transformingThe analysis examines the major factors transforming manufacturing point to several key and interlinked drivers.Production processes have become increasingly fragmented and shifting patterns of trade are emerging.Manufacturers in successful OECD rural areas, notably in Central and Eastern Europe, were able to leverage relatively lower unit labour costs, proximity to European GVC hubs and entry to the European single market.Many others were also able to identify niches and specialisations in GVCs by upgrading existing manufacturing processes to higher value activities of those chains, boosting productivity in the process.These include the region of Arezzo in Italy, which built on its expertise in handcrafted textiles to modernise through computer-aided design to provide more tailored services and products to a wider audience, helped in addition by its geographical proximity to Milan.As seen through the case studies,  17 THE FUTURE OF RURAL MANUFACTURING © OECD 2023 2022[7]).Furthermore, the EU Green Deal Industrial Plan (February 2023) and the associated Net-Zero Industry Act (March 2023), show that there is a clear motivation to develop local European industry via similar means as established strategies abroad (e.g., United States Inflation Reduction Act (IRA) and China's substantial investments in green industries).These plans include specific stipulations for the development of net-zero technologies as a catalyst for growth in less-developed regions and with the aim of enhancing and/or transitioning key sectors, manufacturing being chief among them.The European Commission tabled a proposal for a regulation establishing a new Strategic Technologies for Europe Platform (STEP) proposal to boost investments in critical technologies (deep and digital, clean and bio technologies) in Europe.It contains specific provisions to encourage the use of Cohesion Policy in less developed regions to target investment from large companies in these sectors and reinforce local manufacturing ecosystems.For the case of the US, the strong place-based dimension that is embedded in the recent spending bills in the American Rescue Plan Act (ARP), the Infrastructure Investment and Jobs Act (IIJA), the CHIPS and Science Act, and the IRA is starting to shape the concept of place-based industrial policy (Brookings Institution, 2023[8]).It is clear that more work needs to be undertaken to build coherence and complementarities between industrial and regional policies, especially for lagging regions. Understanding the diversity of rural manufacturingUnderstanding the mechanisms through which rural manufacturers differentiate their products is part of the challenge in supporting their adaptation to future challenges.Not all manufacturing is large-scale and tied to global value chains (GVCs) nor is it high-technology.Firms may create products that are either differentiated, meaning they are able to command a price premium for their product, or commoditised and open to global price competition.Such production processes and firms are highly prominent in rural areas.The following section expands on the means of differentiation and includes artisanal skills, heritage, SMEs and family-owned business.This differentiation considers how production is or is not tied to the local area.These concepts are developed further below in a typology identifying rural competitive advantages through differentiation of products.THE FUTURE OF RURAL MANUFACTURING © OECD 2023 homogenous mass production, handmade goods produced by skilled artisans continue to be highly prized by consumers.For example, the production of Harris Tweed in the western isles of Scotland, United Kingdom, continues to operate, to some extent, as a cottage industry, with all fabric woven in the islanders' homes.Failure to adhere to this age-old process means the fabric will not receive the stamp of authenticity from the product's independent authority (Harris Tweed[9]).Research has shown consumers are willing to pay significantly more for handmade goods (Fuchs, Schreier and Van Osselaer, 2015[10]) and that they increasingly take an interest in where things are made (Yang et al., 2019[11]).Public interest in this type of manufacturing is such that it is regularly tied together with tourism experiences so visitors can see the work in action, further expanding these activities' economic impact on rural communities.Several regional-industrial identities have emerged since the Industrial Revolution.Products such as Delftware from the Netherlands or Bohemian Crystal from the western Czech Republic have made their places of origin famous, leveraging local assets and skillsets to build a source of identity and pride as well as prosperity.These identities have helped to stave off commoditisation and have been a source of resilience, with several of these products having survived tumultuous change over centuries.The differentiation that these heritage manufacturers develop helps insulate them from global price competition while, at the same time, anchoring production locally.The business models underpinning rural businesses that specialise in niches linked to traditional know-how and local consolidated cultural heritage, for example, engage in "innovations" that would not typically be captured in more common notions of innovation.

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