Measuring and Benchmarking the Structural

Adjustment Performance of EU Industry

The Framework Contract of Sectoral Competitiveness Studies –
ENTR/06/054

Key Findings

Client: European Commission, DG Enterprise and Industry

Copenhagen/Brussels, 18 May 2009

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Table of Contents

0.1 Abstract i

0.2 Introduction ii

0.3 Basic understanding of structural adjustment iii

0.4 Exposure to adjustment pressure by sector v

0.5 Institutional framework by country x

0.6 Pressure and adjustment performance by sector xiii

0.6.1 Analysis of adjustment performance level by sector groups xiii
0.6.2 Analysis of speed indicators of adjustment performance by sector groups xv

0.7 Country specific adjustment performance xvi

0.7.1 Analysis of adjustment performance level by country groups xvii
0.7.2 Analysis of speed indicators of adjustment performance by country groups xviii

0.8 Putting it all together: adjustment pressure, potential, performance and

economic outcomes xix
0.8.1 The economic outcomes xix
0.8.2 Linking economic outcome with adjustment performance xxi

0.9 Finally xxii

Annex – figures of adjustment levels by sector and country xxiv

0.9.1 Adjustment level – averages values for the entire manufacturing industry
for each country xxv
0.9.2 Adjustment level – averages values for each sector across all countries in
the study xxvi
0.1 Abstract

The manufacturing industry in Europe has for decades been through a process of
structural changes. Nevertheless, now more than ever before, the current economic crisis
highlights the need for a better understanding and more insights into the adjustment
performance of economic sectors.

Adjustment performance of industry is here considered as the response to changing

business conditions, and is reflected through changes in terms of business behaviour, job
creation and skills demand, as well as technological uptake.

Adjustment pressure is mainly driven by globalisation and R&D/technological product

development. Those sectors exposed to high adjustment pressure are typically adjusting
through technological progress, demand for skilled labour, and increased productivity.
Perhaps unexpectedly, industry sectors exposed to lower adjustment pressures – and often
facing weaker international competition - nevertheless demonstrate a high adjustment
performance in terms of entrepreneurial behaviour - as barriers to entry and exit tend to
be lower on domestic markets.

Adjustment performance reflects the different business challenges and business

opportunities that are offered within the wider economy. Generally speaking, we see
adjustment performance as an attempt to optimise the business performance given the
exposure to structural change – including the different framework conditions.

The institutional framework plays a key role in structural change, as it enables and
reinforces the adjustment potential of firms and sectors. When measuring these
conditions, the Anglo-Saxon countries appear to have more favourable framework
conditions, followed by the Nordic countries, while the new Member states and to some
extent Southern European countries appear to be less conducive to change. However, we
have not found evidence that similar framework conditions necessarily leads to similar
adjustment performance, nor to economic outcome for the manufacturing industry. This
can be explained by the fact that the institutional framework conditions are rather
enabling than determining adjustment performance – at the end adjustment performance
is to a large extent determined by the industry sectors, their adjustment potential and their
exposure to adjustment pressure.

A policy implication from the above is that high exposure to adjustment pressure requires
initiatives promoting technological development and access to skilled labour, next to a
favourable entrepreneurial policy. The overviews by country suggest that a rather uniform
approach across the EU can be taken forward in these areas. National differences tend to
focus on labour markets, where adjustment performance varies strongly between Member
states.

All in all, the study is quite experimental in analysing adjustment performance in 23

sectors in 14 countries, and to some extent also descriptive in nature. However, the study
has revealed some interesting features of adjustment performance which call for further
and more detailed studies, which will benefit from a better access to harmonised,
European industrial statistics.

i
0.2 Introduction

The current and sudden economic crisis that has affected the European economy in the
last half year has pointed more than ever before to the importance of adjustment and
structural change. Indeed, there is a compelling need for a better understanding and more
insights into the adjustment pressure that individual economic sectors experience, the
adjustment performance of sectors and countries and the institutional framework that
directly impacts the need and the capabilities of change.

The ability of the manufacturing industry to adapt to change and proactively stimulate
structural change is pivotal for achieving the EU’s overall growth and job objectives. As
mentioned in the Communication from the Commission on industrial policy 1 , the EU’s
ability to adapt to changing market realities and technological developments seems to lag
behind those of its key competitors, notably the US, but probably more so behind new
global players such as Brazil, Russia, India or China.

The overall objective of this study is to measure and benchmark the adjustment
performance of sectors and countries and assess the institutional framework that directly
affects the adjustment pressure and the performance in responding to structural change.
More specifically, the study aims to:
• Review the literature on the relationship between the drivers of adjustment pressure
and economic performance indicators, examine the exposure of individual industrial
sectors, and:
• Identify the main factors of the institutional environment influencing the adjustment
pressure and opacity.

This report has been produced as part of the framework contract on Sectoral
Competitiveness Studies (ENTR/06/054). The study has been taken forward by the
Danish Technological Institute, in cooperation with the ECORYS SCS Consortium. The
current Key Findings report is accompanied by a more technical Background Report.

The study is experimental and to some extent necessarily descriptive in nature. It presents
the results of the adjustment performance within the areas of labour market, business
behaviour and technological development for 23 manufacturing sectors in 14 countries
over the last 10 years (1995 – 2005 and for some indicators 1996 – 2006). Due to the
restricted nature of the study as well as data availability, the study does not cover the
services sector – which is considered a clear limitation.

This Key Findings Report will now point to the highlights of the study “Measuring and
Benchmarking the Structural Adjustment Performance of EU Industry”.

1
COM(2007)374, Communication from the Commission to the Council, the European Parliament, the
European Economic and Social Committee of the Regions, Mid-term review of industrial policy, A
contriSbution to the EU’s Growth and Jobs Strategy

ii
 0.3 Basic understanding of structural adjustment

Structural change is an important and pervasive phenomenon that deserves close scrutiny.
First of all, we need to acknowledge that this process takes place at various levels, namely
at macro-level, sector-level, firm level and even intra-firm level. We will focus in this
study mostly on the adjustment at the level of sectors and countries – and consider this to
be the ‘aggregates’ of the various forces responsible for inducing structural change.
The conceptual framework (figure 0.1) has provided the study with a systematic approach
to understanding the relationship between drivers for structural change and adjustment
performance as well as defining the key elements in the framework.

Figure 0.1: Conceptualisation of structural adjustment (revised)

Institutional Framework

adjustment adjustment adjustment

pressure potential performance

Firm / industry Firm / industry

adjustment capacity response

DRIVERS FOR Labour market Economic AGGREGATE

Labour adjustment
STRUCTURAL apr i,c capacity response ap i,c variables / ev i,c ECONOMIC
CHANGE outcomes SITUATION
Technology Technology
adjustment capacity response

adjustment adjustment adjustment

pressure potential performance

Economy / Market Conditions

The key components of the conceptual framework are identified as:

• The adjustment pressure (apri,c) on a given industry in a given country which is
seen to be triggered by a set of ‘drivers for structural change’ that causes
fundamental changes in the structure of the economy. These drivers include factors
such as technological change and innovation, increased competition and the
emergence of new competitors, significant shifts in consumer demand, changes in
legislation (e.g., safety and environment), availability of inputs, market access, etc.
• The response of a given industry in a given country, i.e., the adjustment
performance (apri,c), is seen to be captured by three dimensions: (i) the adjustment of
firms; (ii) the adjustment of the labour market; and (iii) the uptake of technological
progress. Thus, the adjustment performance should be reflected through changes in
terms of business behaviour, the labour market, and technological uptake.
• The outcome(s) of the adjustment performance in the above mentioned dimensions
will, in turn, be reflected in economic variables (evi,c) such as productivity,
employment, and growth. The outcome can be seen as a direct result of the

iii
 adjustment performance of the industry or as an outcome effecting the aggregate
economic situation or the entire industrial structure 2 .

Both the adjustment pressure and the adjustment performance are seen to be dependent
on:
• The overall condition of the economy which, itself, is a reflection of the (aggregate)
of the economic variables (evi,c), and
• The institutional framework for adaptability (ifi,c) which encompasses factors
related to capital market functioning, labour market functioning, product marketing
function and the innovation system.

As a whole, the conceptual framework states that the pressure to adjust, the adjustment
performance, the institutional framework and the economic performance variables can
vary across sectors and countries. Adjustment performance of any industry takes place as
a result of drivers of structural change, such as globalisation and technological
development. These drivers cause a change in adjustment pressure; whether this pressure
actually results in any change depends on the adjustment potential of any given industry,
sector or country. In a more general context, we can distinguish between ‘drivers of
structural change’ that influence demand-side conditions and those that influence supply-
side conditions; with in some cases ‘drivers’ that will impact on both the demand and
supply side. The extent, however, that these ‘drivers’ are translated into structural
adjustment pressure will depend on the responsiveness of both demand and supply
(separately) to the ‘driver’, and the way in which supply and demand interact to
determine the overall condition of the market.

Some of the reported studies have proven the impact of a given structural pressure
indicator on the adjustment performance of the industry. A considerable body of the
literature focuses on relationships between one element of adjustment pressure or the
institutional framework conditions and one specific aspect of adjustment performance
without testing the interaction of different aspects of adjustment pressure and the
institutional framework simultaneously.

Therefore, only fragmented empirical evidence can be found about the functioning of the
entire relationships between all factors of the adjustment pressure and the institutional
framework conditions for a country and the adjustment performance of manufacturing
industry.

Main linkages between adjustment pressure and performance include:

• Although globalisation if often referred to as a main driver behind structural change,
technological change is often a much more important driver;
• Competition, including its consequences in terms of FDI and delocalisation of
production processes - or rather the nature of competition – emerges as an important
determinant of employment creation or destruction;
• High churning – both in labour markets and firm entry and exit – is observed to lead
to higher productivity and technological progress;

2
In this study, the measurement of the adjustment performance includes economic variables as productivity,
profitability and job creation as we see these variables are closely linked to adjustment performance
(integrated in the strategic mindset of the business managers). More aggregated economic structures will
here be considered as the overall outcome of adjustment performance.

iv
 • Structural adjustment within firms and within sectors drives changes in skills
composition and labour force;
• Technology and innovation are strong drivers behind entry and exit dynamics, as it
opens up possibilities for new products and processes; sectors with high technological
change exhibit high churning;
• High entry & exit / high churning links strongly to productivity and employment
growth;
• At sector level, differences in labour productivity between countries can be partially
explained by technological changes and innovation; essential is the capacity in a
given country to diffuse ICT products, in particular in the service sectors;
• As firms / sectors shift from low value added / low quality to high value added and
quality products, they tend to devote more resources to product and process
development (R&D and innovations); yet R&D levels are much dependent on the
business cycle as well;

Main linkages between institutional framework and adjustment performance include:

• Indirect and framework measures (e.g. transparent jurisdiction, and well-functioning
capital and labour markets) tend to influence structural adjustment performance more
than direct government measures performance of firms (e.g. subsidies);
• The labour market and underlying social system has a strong influence on the
structural adjustment performance: an active labour market policy appears to be an
important instrument in increasing the structural adjustment ability of labour markets;
• Government’s role in supporting technological progress is twofold. On the one hand
government has a direct role to play as ‘provider of basic R&D’ (through public R&D
institutions). On the other hand the necessary framework should be in place to give
firms the right incentives to innovate (e.g. good IPR).

0.4 Exposure to adjustment pressure by sector

Not all industries are equally exposed to adjustment pressure, and we have therefore
analysed which indicators are exercising most impact on adjustment pressure.
“Globalisation and market integration” as well as “innovation and technological change”
turned out to be amongst the most significant drivers of structural change. 3 Within these
broad drivers, we have singled out two key indicators as drivers of structural change:
“export share of production” and “technology intensity” (ratio of business R&D
expenditure to value added) (see figure 0.2).

3
Technological change has an exogenous and endogenous component. Here it is meant that firms with high
technological intensity are more exposed to technological change – as they are under strong pressure to
change their products of a high technological content.

v
Figure 0.2 Exposure to adjustment pressure (all sectors, NACE 2) according to globalisation (export share of production)
and technology intensity.

Group 4

Group 2

Group 1
Group 3

Notes: 1) Numbers refer to two-digit NACE codes, and are explained in the first column of the table below
2) The statistical observation is the same for some sectors, e.g. NACE 17, 18 and 19

Nace codes – Sectors

Group 1 (Globalisation: low – Technology intensity: low)
15 Food products and beverages
16 Tobacco products
20 Wood and products of wood
21 Pulp, paper and paper products
22 Publishing, printing and reproduction of recorded media
23 Coke, refined petroleum products and nuclear fuel
26 Other non-metallic mineral products
28 Metal products, except machinery and equipment
Group 2 (Globalisation: medium – Technology intensity: low)
25 Rubber and plastic products
36 Furniture; manufacturing n.e.c.
37 Recycling
Group 3 (Globalisation: high – Technology intensity: low)
17 Textiles
18 Wearing apparel; dressing and dyeing of fur
19 Tanning and dressing of leather
27 Basic metals
Group 4 (Globalisation: high – Technology intensity: high)
24 Chemicals and chemical products
29 Machinery and equipment n.e.c.
30 Office machinery and computers
31 Electrical machinery and apparatus n.e.c.
32 Radio, television and communication equipment and apparatus
33 Medical, precision and optical instruments, watches and clocks
34 Motor vehicles, trailers and semi-trailers
35 Other transport equipment

vi
 Table 0.1 Exposure to adjustment pressures by manufacturing sector: Globalisation and market integration and innovation and technological development.

Export share of  Import  Intra‐industry  Technology 

production penetration trade Price  Productivity  intensity
convergence  differentials 
(%) (%) (%) within the EU within the EU (%)
Nace codes – Sectors 2003 2003 2003 2005 2005 2003
Group 1 (Globalisation: low – Technology intensity: low)
15 Food products and beverages 28 27 79 37,7 6,1 1,9
16 Tobacco products 28 27 79 57,3 6,1 1,9
20 Wood and products of wood 29 31 60 28,7 9,8 0,6
21 Pulp, paper and paper products 30 29 76 28,9 7,5 0,9
22 Publishing, printing and reproduction of recorded media 30 29 76 27,3 7,5 0,9
23 Coke, refined petroleum products and nuclear fuel 32 35 71 122,9 15,8 2,6
26 Other non-metallic mineral products 26 24 77 33,3 6,9 1,3
28 Metal products, except machinery and equipment 25 28 84 28,7 5,3 1,3
Group 2 (Globalisation: medium – Technology intensity: low)
25 Rubber and plastic products 55 58 83 31,5 10,8 2,7
36 Furniture; manufacturing n.e.c. 47 51 73 27,6 8,2 1,4
37 Recycling 47 51 73 59,2 8,2 1,4
Group 3 (Globalisation: high – Technology intensity: low)
17 Textiles 85 90 75 34,2 6,4 1,7
18 Wearing apparel; dressing and dyeing of fur 85 90 75 37,9 6,4 1,7
19 Tanning and dressing of leather 85 90 75 36,6 6,4 1,7
27 Basic metals 71 71 78 45,7 5,3 2,8
Group 4 (Globalisation: high – Technology intensity: high)
24 Chemicals and chemical products 80 94 72 43 9 14,6
29 Machinery and equipment n.e.c. 75 76 76 27,5 9,8 6,5
30 Office machinery and computers 413 126 57 38,5 21,4 12
31 Electrical machinery and apparatus n.e.c. 69 73 88 29 21,4 13,9
32 Radio, television and communication equipment and apparatus 87 89 79 37,4 21,4 29,7
33 Medical, precision and optical instruments, watches and clocks 77 82 69 30,5 21,4 13,8
34 Motor vehicles, trailers and semi-trailers 92 91 71 35,2 7,4 10,1
35 Other transport equipment 68 73 79 35,2 7,4 12,8

Legend: low = red medium = yellow high = green

vii
Table 0.2. Exposure to adjustment pressure: key industry characteristics

Number of Share of Unit labour

Number of persons personnel cost
Number of persons employed costs in Energy ICT
enterprises employed per production (Percentage intensity intensity Single-input Changes in Consumer
(100 pers.) enterprise (%) growth ) (%) (%) dependence regulation preferences
Nace codes – Sectors 2005 2005 2005 2005 1995-2003 2005 2005
Group 1 (Globalisation: low – Technology intensity: low)
15 Food products and beverages 309702 46881 15 14 27,6 2 0,14 High high high
16 Tobacco products 300 640 213 5 27,6 0,2 0,14 high high
20 Wood and products of wood 198000 12800 6 19 4,7 2,5 0,08 high
21 Pulp, paper and paper products 19624 7300 37 18 17,2 6,5 0,26 high
22 Publishing, printing and reproduction of recorded media 218300 18300 8 25 17,2 0,9 0,26 high
23 Coke, refined petroleum products and nuclear fuel 1253 1695 135 3 34,8 0,8 0,18 High high high
26 Other non-metallic mineral products 106391 15958 15 22 15,8 6,1 0,11 high high
28 Metal products, except machinery and equipment 401000 39300 10 26 19,8 1,7 0,14 high
Group 2 (Globalisation: medium – Technology intensity: low)
25 Rubber and plastic products 65700 17000 26 23 22,6 2,5 0,19 High high high
36 Furniture; manufacturing n.e.c. 235445 18000 8 23 18,2 1,2 0,1 high
37 Recycling 15200 1420 9 13 18,2 2,1 0,1 High
Group 3 (Globalisation: high – Technology intensity: low)
17 Textiles 80884 11400 14 22 10,2 3,1 -0,1 high
18 Wearing apparel; dressing and dyeing of fur 147468 14800 10 21 10,2 1,2 -0,1 high
19 Tanning and dressing of leather 45000 5639 13 18 10,2 1,5 -0,1 high
27 Basic metals 17300 11200 65 14 3,5 5,9 0,14 High high
Group 4 (Globalisation: high – Technology intensity: high)
24 Chemicals and chemical products 33528 18881 56 17 10,7 3,2 0,21 high high
29 Machinery and equipment n.e.c. 176280 36363 21 26 20 1 0,14
30 Office machinery and computers 10700 1630 15 12 44,4 0,4 0,08 high
31 Electrical machinery and apparatus n.e.c. 71000 16826 24 26 5,3 0,9 0,08 high
32 Radio, television and communication equipment 29737 7716 26 20 -7,9 0,6 0,08 high
33 Medical, precision and optical instruments etc 93827 10468 11 30 13,2 0,7 0,08 high
34 Motor vehicles, trailers and semi-trailers 18540 22500 121 18 -4 0,7 0,15 high high
35 Other transport equipment 26265 9030 34 22 12,6 0,8 0,15 high

Legend: low = red medium = yellow high = green

viii
Base on table 02 and table 03 we can give the following description of the four identified
groups according to their exposure to adjustment pressure:

Group 1: Local oriented low tech sectors; This group is characterised by traditional
manufacturing sectors, including food and drink, metal products, publishing, other non-
metallic mineral products and wood/wood products - often dominated by smaller
enterprises. Despite the small average firm size, it is important to acknowledge that large
international and global players are increasingly present in these sectors – hence the
variance in firm size is large as well as a high percentage of intra-industry trade.

Overall exposure to structural adjustment pressures is expected to be moderate, as about

25-30% of production is exported and as technology intensity is low. In this group we
find sectors with a high single-input dependence, mostly due to dependency of raw
materials and high share of labour cost, growth in unit labour cost. Some sectors such as
mineral products and paper products also show an high energy intensity (import
dependency), while all sectors in this group are exposed to high adjustment pressures
related to changing customer preferences.

Group 2: International oriented low tech sectors; This small group – including rubber &
plastic and furniture manufacturing - is exposed to medium adjustment pressures, as
about half of the production value is exported, while the adjustment pressure from
technology intensity is rather low.

Adjustment pressure arising from labour cost is medium to high and intensified by
increased unit labour cost over time. Exposure is related to several indicators single-input
dependence – notably a changing consumer preference.

Group 3: Globalised low tech sectors; This group, including textiles, apparel and basic
metals industries, is clearly exposed to high adjustment pressures resulting from
significant international trade penetration - while other indicators related to globalisation
and technology only cause a limited adjustment pressure.

The average company size is typically medium where the share of personal costs in
production is medium to high and the growth in the unit labour costs has been medium
indicating a pressure generated from labour cost. The energy and ICT intensity are
typically low, expect for one sector with a high dependency of energy.

Group 4: Globalised high tech sectors; This group, including machinery and equipment,
chemicals, motor vehicles and electrical machinery, is highly exposed to adjustment
pressures resulting from significant international trade penetration and productivity
differentials within the EU. Technology intensity is high as a result of adjustment
pressures linked to innovation and technological changes. Adjustment pressure due to
price convergence is not significant. This group is also characterised by a medium to
large scale enterprises with a tendency to generally large enterprises than the other
groups.

The share of labour cost is medium to high while the development in the unit labour cost
is more mixed indicating that adjustment pressure is not due to labour cost as well as

ix
 energy. Despite the technological nature of these sectors and the importance of R&D,
their dependence on ICT is not necessarily high.

0.5 Institutional framework by country

The institutional framework plays a key role in our analysis, as it enables and reinforces
the adjustment potential of firms and sectors, especially through the proper functioning of
the labour market, but also through shaping an entrepreneurial environment and to some
extent supporting the technological adjustment capacity. Besides, the institutional
framework can also exert adjustment pressure on to firms and sectors – especially when
considering other domains than enterprise policy - for instance through reinforcing
environmental or stricter labour market regulation.

We have examined the countries’ institutional framework across Europe and through an
empirical analysis identified a number of country typologies. Considering the results of
the cluster analysis, the following groups of countries can be distinguished:
• New Member States – here represented by Poland and the Czech Republic;
• Anglo-Saxon countries within the EU: United Kingdom and Ireland;
• North Western Europe; Belgium, Germany and the Netherlands;
• Southern and Alpine Europe; Austria, Italy, Spain and France.
• The Northern countries: Denmark, Finland and Norway.

For each of these groups we summarize the main characteristics in a group profile,
whereby the size of the circle is an indication of the inclination of the institutional
framework to condition structural change (figure 0.3) We normalized the different
variables and inverted the scale of a number of variables 4 to allow identical interpretation
of all variables: the higher the score, the better the outcome.

4
The following variables have been inverted: employment protection legislation, bargaining coverage, trade
union density, regulatory and administrative opacity, barriers to competition, administrative burdens,
barriers to trade and investment and state control.

x
Figure 0.3 Institutional framework conditions by country type

New Member States Anglo-Saxon countries

CREDIT CREDIT

SC EDUC
4.0 VC SC EDUC 4.0 VC
3.0 3.0
PUBLIC R&D 2.0 EPL PUBLIC R&D 2.0 EPL
1.0 1.0
HT R&D 0.0 ALM P HT R&D 0.0 ALM P
-1.0 -1.0
-2.0 -2.0
CLOSING -3.0 COLLBAR CLOSING -3.0 COLLBAR

STATE TRADEUNIO STATE TRADEUNION

BARR TRADE TER EDUC BARR TRADE TER EDUC

ADM IN BURD REG OP ADM IN BURD REG OP

BARR COM P BARR COM P

Belgium, Netherlands and Germany Spain, Italy, France and Austria

CREDIT CREDIT
SC EDUC
4.0 VC SC EDUC
4.0 VC
3.0 3.0
PUBLIC R&D 2.0 EPL PUBLIC R&D 2.0 EPL
1.0 1.0
HT R&D 0.0 ALM P HT R&D 0.0 ALM P
-1.0 -1.0
-2.0 -2.0
CLOSING -3.0 COLLBAR CLOSING -3.0 COLLBAR

STATE TRADEUNION STATE TRADEUNION

BARR TRADE TER EDUC BARR TRADE TER EDUC

ADM IN BURD REG OP ADM IN BURD REG OP

BARR COM P BARR COM P

CREDIT Ease of getting credit

Nordic countries
VC Availability of seed and start-up finance
CREDIT Overall employment protection legislation
4.0 EPL
SC EDUC VC strictness
3.0 Public expenditure on active labour market
ALMP
PUBLIC R&D 2.0 EPL policy
1.0 COLLBAR Collective bargaining coverage
HT R&D 0.0 ALM P TRADEUNION Trade union density
-1.0 TER EDUC Total graduates tertiary education
-2.0
REG OP Regulatory and administrative opacity
CLOSING -3.0 COLLBAR
BARR COMP Barriers to competition
ADMIN BURD Administrative burdens of start ups
STATE TRADEUNION
BARR TRADE Barriers to trade and investment

BARR TRADE TER EDUC STATE State control

CLOSING Ease of closing a business
ADM IN BURD REG OP
R&D expenditures in medium-high and high-
BARR COM P HT R&D tech manufacturing as % of total R&D
expenditures in manufacturing
PUBLIC R&D Public R&D expenditures
Graduates in mathematics, science and
SC EDUC
technology

xi
Common characteristics of the New Member States are the negligible level of early stage
venture capital, a relatively strict labour protection, a low total public expenditure on
Active Labour market policy, relatively low collective bargaining coverage, and a low
number of graduates in math and science, especially in the Czech Republic. Furthermore,
there is a high regulatory and administrative opacity, a large administrative burden to
start-ups, barriers to trade and investment and state control, especially in Poland, whereas
the New Member States have a low flexibility in closing business and low expenditures in
public R&D.

The Anglo-Saxon countries are characterized by a high score on ease of getting credit,
low labour protection, low total public expenditures on active labour market policies, a
high number of graduates in tertiary education and graduates in math and science, and
low barriers to competition, administrative burdens to start-up, as well as barriers to trade
and investment and state control. The Anglo-Saxon countries also demonstrate a high
flexibility in closing business and a low expenditure in public R&D, but a high share of
(medium) high-tech R&D as part of total R&D.

Common characteristics of Northwestern Europe (Belgium, the Netherlands and

Germany) are the low level of early stage venture capital investments, a strict labour
protection, high total public expenditures on active labour market policies, high collective
bargaining coverage, a low number of graduates in tertiary education and in math and
sciences, a high regulatory and administrative opacity. Furthermore, these countries have
low barriers to competition, a limited administrative burden to start-up and low barriers to
trade and investment.

The Southern and Alpine Europe countries are less homogenous, but nevertheless show
some common features, including a low level of early stage venture capital investment, a
strict labour protection, high collective bargaining coverage, a low regulatory and
administrative opacity and high administrative burdens to start-up.

The Nordic countries also have some common characteristics such as high total public
expenditures on active labour market policies, high collective bargaining coverage and
union density, low administrative burdens to start-up and high flexibility in closing
business, and high public R&D expenditures.

In conclusion, we can state that the propensity of the institutional framework to support or
hamper structural change varies considerably across Europe. Across the board, the Anglo-
Saxon countries appear to have institutional frameworks that are more conducive towards
promoting adjustment potential. Apart from labour market functioning, the institutional
framework of New Member States and to some extent Southern European countries tend
to put more adjustment pressure to their firms and sectors – notably in terms of
entrepreneurial environment and technological capacity. The institutional framework
conditions in Northern and North Western Europe appear to be more balanced in terms of
exerting adjustment pressures in some areas while promoting adjustment potential in
others.

xii
 0.6 Pressure and adjustment performance by sector

Our next step in the analysis is to examine the relationship between adjustment pressure
(exerted by globalization and technological change) and adjustment performance of the
industry. Thereto, when using adjustment indicators (table 0.3), we are introducing the
terms adjustment level and adjustment speed – both of which are important for
understanding structural change.

Table 0.3. Indicators for measuring adjustment pressure and their definition

Percentage of workforce who worked in another sector one year

Mobility
earlier

Labour
Skills Percentage of hours worked by high skilled people in an industry
market

The absolute net number of jobs created per sector per 1.000
Job creation
inhabitants from one year to the next

Investment Percentage of investments of value added factor costs

Profitability Percentage of gross operating surplus of value added

Micro Enterprises Growth of micro enterprises per. 1000 inhabitants

Firm
behaviour New Enterprises New of micro enterprises per. 1000 inhabitants

Exit Enterprises Exit of micro enterprises per. 1000 inhabitants.

Gross operating surplus in constant prices (Euro) divided by

Labour productivity
number of persons engaged

R&D Employees Absolute number of R&D personnel per. 1000 employees

Technological R&D Investment Percentage of expenditure on R&D of industry value added

progress
Turnover on new Percentage of turnover from products new to market of total
products turnover

0.6.1 Analysis of adjustment performance level by sector groups

As a starting point, we know that the adjustment pressures are different between the four
broad sector groups distinguished above. We are therefore interested in seeing similar
differences in adjustment performance through the three dimensions: (i) the adjustment of
firms; (ii) the adjustment of the labour market; and (iii) the uptake of technological
progress. The key question is therefore which indicators are influenced by exerting
adjustment pressure. In a situation with little disparities in adjustment performance
between the groups, we therefore assume a more limited influence of adjustment
pressure.

xiii
 Table 0.4 Average adjustment performance level by all manufacturing sectors for selected variables (The sectors are
listed according to the grouping of sectors according to adjustment pressure – average ranking on a scale from
1 to 10 – the original figure are enclosed in the annex ).

Labour market Firm behaviour        Technological progress

M ic r o  e n t e r p r is e s

N e w  e n t e r p r is e s

E x it  e n t e r p r is e s

R D  In v e s t m e n t
R D  E m p lo y e e s

A v e r a g e  o f a ll
R D  T u r n o v e r
P r o d u c t iv it y
P r o fit a b ilit y
J o b c r e a t io n

In v e s t m e n t
M o b ilit y

S k ills
Sector Nace 2 ‐ digits

Group 1 (Globalisation: low – Technology intensity: low) 5,82 5,29 5,41 6,15 6,44 5,87 5,64 5,48 5,88 3,93 3,43 3,93 5,27
Food products and beverages 6,71 2,64 4,79 7,64 6,79 8,57 7,93 7,57 3,29 1,07 4,29 4,21 5,46
Tobacco products 7,86 2,86 7,14 2,86 8,71 1,00 1,79 1,07 9,14 8,00 4,29 3,86 4,88
Wood and products of woold and cork 6,29 5,21 4,64 7,07 5,29 7,71 7,36 7,07 3,36 1,79 2,43 2,79 5,08
Pulp, paper and paper products 4,93 6,64 4,64 8,21 5,14 3,29 7,21 4,79 7,07 4,29 2,36 2,57 5,10
Publishing, printing and reproduction of recorded media 6,14 6,86 3,86 4,07 5,79 8,79 6,14 7,79 5,00 2,07 2,14 3,71 5,20
Coke, refined petrolium and nuclear fuel 4,36 7,07 6,00 6,79 9,57 1,43 1,86 1,50 9,43 6,43 5,00 5,57 5,42
Non‐metallic mineral products 4,79 5,86 5,07 7,21 6,29 6,93 6,64 6,14 5,79 4,14 3,93 5,86 5,72
Fabricated metal products 5,50 5,21 7,14 5,36 3,93 9,21 6,21 7,93 4,00 3,64 3,00 2,86 5,33
Group 2 (Globalisation: medium – Technology intensity: low) 6,38 4,67 5,57 7,00 5,79 5,95 6,43 5,82 4,69 3,88 4,24 4,40 5,40
Rubber and plastic produckts 5,79 6,14 5,29 6,86 5,29 5,71 4,71 3,86 5,21 5,86 5,71 5,93 5,53
Furniture 5,57 3,93 2,79 4,86 3,93 9,00 8,14 7,79 2,07 3,93 3,50 5,21 5,06
Recycling 7,79 3,93 8,64 9,29 8,14 3,14 6,79 1,86 3,50 2,07 4,60
Group 3 (Globalisation: high – Technology intensity: low) 4,80 3,07 3,95 4,30 4,75 5,29 5,89 6,16 3,41 3,91 4,23 4,46 4,52
Textiles 5,14 2,14 2,71 5,21 3,57 6,86 7,14 7,21 3,21 4,64 4,07 4,86 4,73
Wearing apparel; dressing and dying of fur 5,07 2,36 2,50 2,21 4,50 7,21 5,00 6,79 2,57 2,64 3,71 4,50 4,09
Tanning and dressing of leather 4,71 2,36 4,43 3,14 4,14 4,07 3,71 4,43 1,64 3,43 3,79 5,79 3,80
Basic metals 4,29 5,43 6,14 6,64 6,79 3,00 7,71 6,21 6,21 4,93 5,36 2,71 5,45
Group 4 (Globalisation: high – Technology intensity: high) 5,20 7,32 6,35 4,88 4,84 5,06 4,93 5,11 6,46 8,47 8,16 7,79 6,21
Chemicals and chemical products 4,21 7,50 4,57 6,71 8,07 4,36 4,93 5,36 8,07 8,57 8,36 4,71 6,29
Machinery and equipment 5,43 6,21 6,07 3,57 3,86 8,21 7,64 7,07 5,14 7,00 7,71 7,71 6,30
Office machinery and computers 6,00 7,93 6,57 3,71 4,64 2,86 6,50 4,21 8,86 9,57 8,71 8,21 6,48
Electrical machinery and apparatus 7,00 7,71 6,43 3,93 4,43 5,71 4,14 5,86 6,00 7,71 7,57 8,36 6,24
Radio, television and radio transmitters 5,50 7,71 4,71 6,00 4,79 4,43 3,86 4,93 7,93 9,71 9,64 9,07 6,52
Medical, precision and optical instruments 4,36 7,71 9,00 3,50 5,79 6,86 4,07 4,93 5,00 8,79 8,21 8,21 6,37
Motor vehicles, trailers and semi‐trailers 5,79 6,79 7,07 7,00 4,50 3,21 2,71 3,79 6,36 8,00 7,71 9,07 6,00
Transport equipment 3,29 7,00 6,36 4,64 2,64 4,86 5,57 4,71 4,29 8,43 7,36 6,93 5,51
Average of all 5,50 5,53 5,50 5,50 5,50 5,50 5,50 5,50 5,50 5,50 5,32 5,43 5,48

Legend: red = high rank yellow = average blue = low

Indeed, as reflected in table 0.4 above, we can see some patterns between adjustment
performance and adjustment pressure, however not always in a linear or straightforward
manner.

Overall, most striking is the strong performance scores of the highly globalised and
technology intensive sectors (Group 4), not only in areas of technology (evident as
technological intensity was taken as a starting point) but also in terms of skills and job
creation as well as productivity. Perhaps even more interesting is the fact that sectors with
a high technological intensity have lower scores on entrepreneurialism (such as (micro-)
firm creation and exit). This could be due to the high barriers to entry in these sectors –
implying that established firms suffer less from new entrants than in other industries. An
interesting implication could be that adjustment speed in technological intensive

xiv
 industries could be different from other sectors – where adjustment could be a more
gradual and constant process. Building on insights from evolutionary economics, it could
well be that structural adjustment in technological firms proceed in shocks and stages –
with relatively little adjustment within existing markets but with rapid changes where
technologies (and the according paradigms) shift.

Furthermore, it is striking to see that globalisation pressures (as measured through export
shares) do not exert a similar impact on adjustment performance indicators factors such as
job mobility and job creation. To the contrary, we can see that the less exposed industry
groups working predominantly for domestic markets show higher or at least similar
investment levels (as % of value added) than more globalised sectors. Indeed, globalised
sectors overall do not stand out in terms of investment levels. Capital intensiveness (e.g.
chemicals, motor vehicles, pulp and paper) appears to be more important than global
pressures per se.

Equally, sectors which are less exposed from external trade pressures appear to be more
profitable than globalised sectors. Examples are the food and mineral products sectors.
Within the globalised and technology intensive group, a high level of profitability can be
recorded in the chemical industry – including the pharmaceutical industry. Again, some
element of market protection could play a role here – stipulated by the regulatory process
which reduces competition – at least for certain periods and markets. It should be
mentioned here that these profits are often required for re-investing in R&D.

The above findings point to an interesting paradox: those sectors which are strongly
exposed to adjustment pressure would require relatively high levels of profitability and
investment – as part of the need to build adjustment capacity. However, it is the same
strong global competition that may well limit these very same levels of profitability and
investment – often to the benefit of consumers. Thus, there are some hints in the above
findings that adjustment pressure does not always and directly result in similar adjustment
performance. Underlying reasons for this weak link between adjustment pressure and
performance may be due to different capital/output ratios for each sector, or heterogeneity
within sectors. Nevertheless, the analysis points to some food for thought.

In conclusion, we can state that both key drivers behind adjustment pressure
(technological intensity as well as globalisation pressures) have some unexpected
relations with adjustment performance: technological intensity leads not only to higher
productivity but also to higher barriers to entry and exit and therefore limits a constant
and gradual process of structural change, while globalisation pressures may well ‘erode’
the capacity of firms and sectors to reinvest and reinvent themselves to the extent needed.

0.6.2 Analysis of speed indicators of adjustment performance by sector groups

Turning the focus at the adjustment speed – changes in adjustment performance over a
ten year period – a quite different picture is observed in table 0.5. Some radical changes
can be observed within nine out of eleven indicators while adjustment speed is almost
unchanged within the remaining indicators (mobility and investment rate). This point to
adjustment pressure having had only minor impact on these indicators during the last
decade.

xv
 Table 0.5 Average speed indicators of adjustment performance by the sector grouping according to adjustment pressure
for each of the selected variables. Normalized adjustment speed by pressure groups. Mean values.

Labour market Firm behaviour Technology

M icro  en terp rises

N ew  en terp rises

Exit en terp rises

R D  In vestm en t
R D  Em p lo yees
P ro d u ctivity
P ro fitab ility
Jo b creatio n

In vestm en t
M o b ility

Pressure groups Skills

Global low and techintensity low -0,01 0,01 -0,02 0,06 -0,08 -0,01 0,05 -0,03 -0,09 0,02 -0,14
Gloabal medium and techintensity low -0,13 0,11 -0,27 0,10 0,18 0,03 0,42 0,01 -0,16 -0,10 0,09
Global high and techintensity low -0,01 0,26 0,13 -0,08 0,38 -0,36 0,05 -0,16 -0,15 0,34 0,24
Global high and tech intensity high 0,06 -0,19 0,06 -0,05 -0,17 0,17 -0,16 0,12 0,23 -0,15 -0,01
Average of all 0,00 -0,00 0,00 -0,00 0,00 0,00 0,01 0,00 -0,00 -0,00 0,00

A figure above 0 indicates an above average positive change for the indicator - the stronger the growth the larger the number. A figure below
indicates a below average decline in the indicator. The values in the table are the means of the normalized adjustment speed calculated for each
indicator. The mean change for each indicator across all countries and sector set to 0. Technically, the stronger or weaker changes are calculated as
deviations from the mean.

Generally, over a time period of ten years, adjustment speed is relatively low for the less
exposed sectors with limited global and technological pressures – none of the adjustment
performance indicators have accelerated their speed in the period covered, which suggests
that structural change in these sectors has not significantly progressed.

On the opposite site of the spectrum, adjustment speed has accelerated for at least some
indicators in the globalised and technologically intensive sectors – notably in terms of
productivity and entrepreneurship (entry and exit barriers).

Globalised low tech sectors demonstrate a different pattern: much adjustment takes place
in terms of upgrading of skills, profitability and R&D investments. This suggests that
globalised low tech sectors in Europe are following – at least to some extent – a trajectory
of valorisation and upgrading, which brings them closer to the technology intensive
industries.

Similar tendencies towards upgrading can be noticed in the Group 2 (medium globalised
and low tech), especially in terms of skills profitability and especially the formation of
new enterprises. However this Group is certainly not evolving into more technology
intensive directions as well as job creation is decreasing.

In conclusion, we can state that adjustment level and adjustment speed present different
patterns; both need to be taken into account when assessing adjustment performance.

0.7 Country specific adjustment performance

We will now examine the relationship between the institutional framework and
adjustment performance of the industry.

xvi
 We assume that the institutional framework can play a role enabling and reinforcing the
adjustment potential of firms and sectors, as well as the institutional framework also can
exert adjustment pressure on firms and sectors. The key question is therefore, which
indicators are influenced by the institutional framework condition. In a situation with
little disparities in adjustment performance between the groups, we therefore assume a
more limited influence of adjustment pressure.

0.7.1 Analysis of adjustment performance level by country groups

We have investigated the country-specific adjustment performance in table 0.6.

Table 0.6 Country-specific adjustment performance (levels) – average ranking on a scale from 1 to 10 (A more detailed
figure is enclosed as annex).

labour market Firm behaviour Technological progress

Micro enterprises

New enterprises

Exit enterprises

RD Investment
RD Employees

Average of all
RD Turnover
Productivity
Profitability
Jobcreation

Investment
Mobility

Skills

Country
New Member states 4,7 5,3 6,0 7,8 8,0 6,8 5,6 5,3 3,8 4,7 4,5 5,2 5,6
Czech Republic 2,6 5,3 5,7 7,7 7,4 7,2 6,3 6,1 2,0 3,6 6,0 5,0 5,4
Poland 6,9 5,3 6,3 7,8 8,5 6,4 4,9 4,4 5,7 5,7 3,0 5,4 5,9
Anglo‐Saxon Countries 7,9 5,6 4,6 4,5 6,7 4,4 3,5 5,5 5,7 5,7 4,7 5,7 5,4
United Kingdom 9,7 5,3 3,6 4,4 6,0 5,3 4,0 3,4 5,7 5,7 5,2 5,3 5,3
Ireland 6,1 6,0 5,7 4,5 7,4 3,5 3,0 7,7 5,7 5,7 4,2 6,1 5,5
North Western Europe 4,7 5,5 5,5 4,6 4,8 5,2 5,3 4,9 6,0 5,5 5,6 5,8 5,3
Belgium 2,7 5,6 5,5 4,7 5,5 6,1 6,2 6,4 6,4 5,6 6,1 5,3 5,5
Germany 4,9 5,6 5,7 4,6 3,7 4,3 3,5 3,1 5,7 5,1 5,6 6,7 4,9
Netherlands 6,3 5,4 5,3 4,3 5,3 5,0 6,3 5,4 6,0 5,7 5,0 5,4 5,5
Southern and Alpine Europe 4,9 5,6 5,6 5,9 4,9 5,9 4,9 4,5 5,3 5,5 5,0 5,3 5,3
Austria 3,7 5,6 5,5 5,0 5,7 5,1 7,1 7,1 6,7 5,4 6,1 6,0 5,7
Italy 3,9 5,7 5,6 6,8 5,8 7,0 3,9 3,5 3,7 5,7 3,7 4,1 5,0
France 6,9 5,7 4,4 5,8 2,9 5,5 4,0 3,3 6,0 5,3 5,6 6,0 5,1
Spain 5,1 5,3 6,9 5,9 5,1 5,8 4,7 4,0 5,1 5,5 4,5 5,1 5,3
Northern countries 6,1 5,6 5,6 5,1 4,6 5,2 7,7 7,6 6,1 5,9 6,5 5,2 5,9
Denmark 6,9 5,6 5,4 5,9 4,2 5,3 7,6 7,2 6,0 5,7 5,7 6,1 6,0
Finland 5,2 5,5 5,9 4,9 5,9 6,1 7,5 7,6 5,6 5,7 6,9 6,1 6,1
Norway 6,1 5,6 5,5 4,6 3,6 4,3 8,0 8,0 6,8 6,3 7,0 3,3 5,8
Average of all 5,5 5,5 5,5 5,5 5,5 5,5 5,5 5,5 5,5 5,5 5,3 5,4 5,5

The above pattern can be explained by differences in firm behaviour – notably the
formation and exit of enterprises. The Nordic countries demonstrate adjustment levels
that are at least twice as high as the large continental countries – clear signs of dynamic
entrepreneurial cultures. In Poland and the Czech Republic investment, profitability and
micro enterprises rank well above the average, illustrating the dynamics and high growth
rates of the economies in the New Member States. However, especially the Czech
Republic appears to have a low labour productivity – which is striking in light of the
performance of Poland - along with Italy.

xvii
 Concerning technological progress, the manufacturing sectors in the Czech Republic have
low numbers of R&D employees relative to total employment. This may well be related
to the sectoral composition of the manufacturing sector. However, change is on the way
as (FDI-related) R&D investments in the Czech Republic are considerably higher now, at
levels comparable to Finland, Norway, and Austria. Finally, despite the overall low
ranking of Germany in terms of adjustment performance, German manufacturing
industries are amongst the most innovative industries in Europe – as measured by R&D
indicators.

0.7.2 Analysis of speed indicators of adjustment performance by country groups

When explaining adjustment performance speed, labour market factors and investment
rate tend to be more dynamic than other aspects of firm behaviour and technology
progress (table 0.7). Across Member states, we can assume that larger differences occur
within labour market policy than within other policy areas. By the same token, we assume
more convergence between Member states in innovation policies, entrepreneurial policy
or corporate tax policy - affecting investment in technological development,
entrepreneurship and profitability.

Table 0.7 Average speed indicators of adjustment performance by clusters for each of the selected variables

Labour market Firm behaviour Technology

M icro  e n te rp rise s

N e w  e n te rp rise s

E xit e n te rp rise s

R D  In v e stm e n t
R D  E m p lo y e e s
P ro d u ctiv ity
P ro fita b ility
Jo b cre a tio n

In v e stm e n t
M o b ility

Sk ills

Country Groups
New member states -0,35 -0,48 -0,09 0,06 0,44 0,09 0,16 -0,08 0,19 -0,66 -0,05
Anglo-Saxon 0,47 1,01 -0,22 -0,26 -0,21 0,12 -0,53 0,13 0,18 0,04 -0,53
North Western Europe 0,57 -0,01 0,05 -0,34 0,02 0,01 -0,05 0,02 -0,04 0,04 -0,16
Southern and Alpine Europe -0,47 -0,08 -0,08 0,50 -0,08 0,27 0,13 -0,01 -0,29 0,36 0,20
Northern Europe -0,03 -0,25 0,27 -0,19 -0,06 -0,51 0,15 -0,02 0,18 -0,10 0,29
Average of all 0,00 -0,00 0,00 -0,00 0,00 0,00 0,01 0,00 -0,00 -0,00 0,00

Between country clusters, the manufacturing industry in the Anglo-Saxon countries has
clearly experienced the most drastic change in the adjustment performance – both upward
and downward. On the one hand, mobility and skills have been upgraded, while job
creation, investment rate, profitability, growth in micro enterprises, and R&D investment
have witnessed a downward trend – and much more so than in other country clusters.
Having the overall assessment of the institutional framework conditions in the Anglo-
Saxon in mind (e.g. figure 0.3), we may conclude that the favourable institutional
framework conditions have not necessarily improved the industry's adjustment
performance for the last decade. Again, the institutional framework is to be seen as an
enabler rather than anything else.

Perhaps more striking even, we observe no real upgrading of the adjustment performance
of the manufacturing sector in the New Member States – especially when related to such
vital factors such as R&D employment, skills and job mobility. The overall impression is
an industry that is facing a great challenge in improving its knowledge and technological

xviii
 basis, and it is questionable whether the institutional framework conditions are fully
enabling such transformations. The role of inward FDI needs to be assessed in this light
as well.

The Nordic countries - traditionally with an offensive public policy in many areas,
demonstrate a strong adjustment speed within four indicators – skills, investment rate and
growth in micro enterprises – and neutral development for the rest of the indicators.

In conclusion, although we observe that differences in adjustment performance can be

occasionally related to differences in the institutional framework - especially within the
area of labour market policy. However in most cases, the institutional framework
condition tends to have only a neutral or a dampening effect on adjustment performance
of the manufacturing industry. This is a somewhat challenging hypothesis, as many
Member states claim to have a policy focus on structural reform and growth policy.

0.8 Putting it all together: adjustment pressure, potential, performance and

economic outcomes

At the end of the day, structural adjustment is not to be seen as an objective on its own,
but rather as a means towards more successful economic performance. Hence the need to
put economic outcome into the equation: Does adjustment pressure indeed lead to greater
adjustment potential, performance, and finally to growth, jobs, and prosperity? Does, as
the conceptual framework suggests, structural adjustment indeed lead to better economic
outcomes?

0.8.1 The economic outcomes

The economic outcome is here considered as the overall economic outcome of the
manufacturing sectors, in relation to industrial structure and its change over time (table
0.8).

Industrial structure differs both within and between the different clusters of countries,
which reinforces the message that institutional framework conditions on their own are not
automatically enabling one specific adjustment performance resulting in one specific
industrial structure.

xix
 Table 0.8: Aggregated profile of the manufacturing industry in selected countries – the industrial structure is assumed to be
an outcome of the adjustment performance.

Employees
in SMEs
Value added (<250 Specialisation
of Value employees) (Globalisation/technology)
manufacturing added as a share of Percentage employed in
as a share of (Euro) of total
total value manufactu employment the three main
added of all ring per in Group 1 Group 2 Group 3 Group 4
industrial sectors in
GDP industries 1000 manu- Low Medium High High
levels inhab. facturing 2006 Low Low Low High
2007 2006 2006 2006 Agric. Indu. Ser.
New Member states
Czech Rep. 82 26 2.6 52 4 38 58 -0,22 0,18 0,03 0,19
Poland 55 19 1.2 56 19 27 54 0,09 0,35 0,12 -0,25
Anglo-Saxon countries
United K. 118 - - 55 1 18 81 0,07 0,17 -0,46 0,03
Ireland 147 23 8.5 53 6 28 67 -0,27 -0,41 -0,61 0,65
North Western Europe
Belgium 119 17 4.6 52 2 20 78 0,05 -0,15 0,03 -0,03
Germany 115 23 5.9 46 2 26 72 -0,13 -0,16 -0,51 0,37
Netherlands 132 13 3.9 65 3 17 80 0,24 -0,07 -0,54 -0,07
Southern and Alpine countries
Austria 128 20 5.6 53 12 22 66 0,03 0,11 -0,2 0,01
Italy 102 13 4.1 74 4 29 67 -0,19 0,18 0,54 -0,02
France 111 18 3.3 53 3 20 76 -0,25 0,25 -0,24 0,29
Spain 105 13 3.2 73 5 29 66 0,2 0,11 -0,03 -0,25
Northern countries
Denmark 125 15 5.0 54 3 21 76 -0,12 0,35 -0,67 0,27
Finland 119 24 6.5 48 5 26 69 -0,01 -0,23 -0,35 0,2
Norway 10 5.1 61 3 20 77 0,22 -0.44 -0.47 0,04

Note: GDP levels - PPP adjusted GDP per capita

Note: FDI intensity – value of inward and outward FDI as a share of GDP
Note: The specialisation index is base on employment by sector in EU 27

Ireland, Germany, Finland and, to some extent, France are characterised by an

overrepresentation of manufacturing industries exposed to a high pressure from both
globalisation and technology; in other words, the industrial structure in these countries is
biased towards a more globalised and knowledge based development.

Relatively limited importance to the manufacturing sector overall is recorded in the

United Kingdom, Norway, Belgium and the Netherlands – demonstrated for instance by
the share of employees and output from the manufacturing industry which is relatively
low. Furthermore, the remaining manufacturing industry tends to specialise in less
exposed sectors, where the forces of globalisation and technological change are
somewhat less pronounced.

xx
 Manufacturing industry is more important in Austria, Italy, and Poland, but their strength
seems to lie rather in traditional production with low-tech content, of which some are
exposed to globalisation. The manufacturing sector has a relatively high importance
measured by employment, but a minor role measured by economic output.

Linking the above structural characteristics to our conceptual framework, one immediate
observation is that countries with similar framework conditions do not necessarily lead to
countries with the same adjustment performance (table 0.6). Indeed, we can see that
countries with similar institutional framework conditions can follow different patterns of
structural development (table 0.8).

0.8.2 Linking economic outcome with adjustment performance

The linkages between the adjustment performance and the economic outcome or
industrial structure seem to be more evident, but we have to deal with results with great
caution, as our data is describing very complex structures and relationships. Therefore,
we will limit ourselves to some speculative hypotheses only.

By comparing the New Member States Czech Republic and Poland we find that the value
added from manufacturing industry is much higher in the Czech Republic, which might
be a consequence of the traditionally high specialisation of manufacturing here, which has
resulted in its ability to be successfully exposed to globalisation and technological change
(table 0.8). Business dynamics – firm behaviour – is slightly higher in the Czech
Republic, except for productivity. All in all, the industry in the Czech Republic seems to
adjust to increasing global competition, which might enable the country to maintain the
high economic performance (value added and employment), while the Polish industry
maintains a rather low value added per employee.

Within the Anglo-Saxon countries, Ireland has a strong high-tech manufacturing industry
characterised by high exposure to globalisation and technological change, while the
United Kingdom has transformed from manufacturing to services – with remaining
manufacturing oriented towards the local market. A closer look at the globalised, high-
tech manufacturing sectors show that Ireland has a very high and until recently an
increasing investment rate (especially for the NACE 32 Radio, television etc.), and a high
level of productivity – much related to inbound FDI which the UK has not seen to the
same extent. More puzzling is the finding that the indicator “R&D investment” shows a
low level of R&D investment in the high-tech sectors, indicating that the R&D profile
might not be as strong as it looks like. For the United Kingdom, the remaining high-tech
sector has a high to very high investment level, and a level that has been stable over the
last decade – demonstrating that firms still present in this sector have a strong resilience
vis-à-vis strong adjustment pressures.

The intuitive assessment is that the Irish high-tech industry is important for the country
due to its sheer size – high economic outcome - but the industry does not seem to adjust
very well to future technological changes and challenges, while the high-tech sector in the
United Kingdom seems to be in the opposite situation – small but rapidly adjusting. The
above patterns can be extended to some other countries.

xxi
 In conclusion, we find that the conceptual framework can enable an analysis of the
structural adjustment performance for the manufacturing industry, as we can link pattern
of adjustment pressure, adjustment performance, and structural change. However, using
the conceptual framework also shows the complexity of adjustment performance. The
conceptual framework also suggests that structural adjustment leads to better economic
outcome, as the countries specialised within sectors exposed to adjustment pressure –
globalised and technology intensive sectors - have the highest value added per employee.
The adjustment performance of the industry seems to a large extent to be a reflection of
the adjustment pressure, where high pressure is reflected in technological progress, skills
and productivity, while lower pressures result in a higher business dynamics searching for
new market opportunities.

0.9 Finally

With capital markets in crisis, it is quite easy to imagine how (changing) business
conditions can affect the performance of industry; it is quite a challenge not only to
measure adjustment performance, but to look underneath to adjustment potential,
adjustment pressure and the enabling institutional framework conditions.

But diving into this type of structural analysis has proven to be complex – perhaps more
so that we already thought. We have addressed this challenge through designing an
'umbrella' - a conceptual framework, where the overall structural development and the
adjustment performance of the manufacturing industry at sector level is understood as a
result of the exposure to drivers of structural change and enabling institution framework
conditions.

Based on the literature review, we have assumed all the way strong linkages between
adjustment pressure and the institutional framework on one side, and the adjustment
performance on the other side. We have then, as far as harmonised European statistical
figures have been accessible, indentified a number of indicators which measure
adjustment pressure and performance as well as characterise the institutional framework
condition.

By the means of this long list of indicators we have made a scattered measurement of the
adjustment performance within the areas of labour market, business behaviour and
technological development for 23 manufacturing sectors in 14 countries over the last 10
years (1995 – 2005, and for some indicators 1996 – 2006). Even though, our conceptual
framework stresses the linkages between pressure and adjustment performance, we can
only indicate the likelihood of these relations.

All in all, the study is quite experimental and to some extent necessarily descriptive in
nature. Further, we would like to emphasise the restricted nature of the study, as well as
data availability has been a limitation, especially for the measurement of adjustment
performance (data on sector level). The study does not cover the service sector, which
also can be considered a clear limitation.

xxii
In spite of the limitations and the restrictive nature of the study, the current and sudden
economic crisis affecting the European economy has more than ever before stressed the
importance of understanding adjustment performance and structural change. Indeed, there
is a compelling need for a better understanding and more insights into the adjustment
pressure at individual economic sectors, the adjustment performance of sectors and
countries, and the institutional framework that directly impacts the need and the
capabilities of change.

Even though this study has provided a better understanding and more insight into these
matters, there is still a need for further follow up, of which we could point at:
• In-depth studies on adjustment performance within specific sectors and/or countries
(cases studies). The aim of such studies should be to get more detailed insight into
adjustment performance, as well as testing the applicability of the conceptual concept
for adjustment performance. The relevance of the identified indicators and the need
for new indicators should be a part of such cases studies.
• An econometric study testing the conceptual framework, especially the relationship
between adjustment pressure, framework condition, adjustment and economic
performance.
• Improvement of the European industrial statistics. For many of the indicators data is
missing or presented at much aggregated level.

The present study stresses the challenge of working with adjustment performance in a
multidimensional approach, and it can work as a point of departure for further work. The
need for continuing such studies is highly emphasised by the current economic crisis
affecting the European economy.

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Annex – figures of adjustment levels by sector and country

In the following two tables the average values for the indicators are calculated all the
sectors and for all the countries included in the study. The names of all the indicators are
listed below as well as the methods of calculation.

Percentage of workforce who worked in another sector

Mobility
one year earlier

Labour Percentage of hours worked by high skilled people in an

Skills
market industry

The absolute net number of jobs created per sector per

Job creation
1.000 inhabitants from one year to the next

Investment Percentage of investments of value added factor costs

Profitability Percentage of gross operating surplus of value added

Micro Enterprises Growth of micro enterprises per. 1000 inhabitants

Firm
behaviour New Enterprises New of micro enterprises per. 1000 inhabitants

Exit Enterprises Exit of micro enterprises per. 1000 inhabitants.

Gross operating surplus in constant prices (Euro) divided

Labour productivity
by number of persons engaged

R&D Employees Absolute number of R&D personnel per. 1000 employees

Percentage of expenditure on R&D of industry value

Technological R&D Investment
added
progress

Turnover on new Percentage of turnover from products new to market of

products total turnover

Each indicator is measured on a different scale and this makes comparisons of the
adjustment level on different indicators difficult. Thus in the actual analysis a ranking of
each indicator is used enabling a compression.

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 0.9.1 Adjustment level – averages values for the entire manufacturing industry for each country

Labour market Firm behaviour        Technological progress

New enterprises

Exit enterprises

RD Investment
RD Employees
 Jobcreation 

RD Turnover
Productivity
Profitability
Investment

enterprises
Mobility

Micro 
Skills
Country
Austria             0,13           11,28           36,47              0,12       122.086           39,19              0,11
Belgium             0,11           11,86           38,82              0,13              3,61              2,40         83.266           51,19              0,08
Czech Republic             0,11              6,55            ‐0,06           20,64           48,10              0,58           74,95           33,74         23.413           10,77              2,67              0,09
Denmark             0,17              4,91            ‐0,04           11,92           27,13              0,11           14,47           14,82         77.721              7,10              0,16
Finland             0,14           28,69            ‐0,02           11,61           42,69              0,17           21,11           26,26         87.487           54,86              6,58              0,06
France             0,17              9,39            ‐0,09           13,60           25,30              0,15           13,18              3,25       110.679           54,95              7,77
Germany             0,14              8,12            ‐0,03           10,72           30,31              0,07           10,16              0,41         90.012           37,07              6,94              0,15
Ireland             0,15           15,93            ‐0,01           14,24           51,81              0,02              0,06           10,36              2,06              0,12
Italy             0,14              4,14            ‐0,05           15,46           39,16              0,33           19,20              6,05         56.153              2,98              0,06
Netherlands             0,17              7,47            ‐0,05           17,51           33,09              0,09           11,79              1,56         93.970              2,58              0,07
Poland             0,17           12,36            ‐0,01           19,79           57,65              0,19              1,13              0,08
Spain             0,15           14,59              0,01           13,25           38,51              0,19           17,70              4,10         75.793           27,95              3,85              0,07
United Kingdom             0,23           12,36            ‐0,12           10,50           39,41              0,09           10,97              4,25              6,52              0,09
Norway             0,15           10,71           30,86              0,06         97.712           62,32              8,09              0,04
Average of all             0,15           11,32            ‐0,04           13,75           38,66              0,17           15,55              7,72         83.544           42,21              4,92              0,09

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 0.9.2 Adjustment level – averages values for each sector across all countries in the study

Labour market Firm behaviour        Technological progress

RD Em ployees
 Jobcreation 

RD Turnover
Productivity
Profitability
Investment

Investment
enterprises

enterprises

enterprises
Mobility

Micro 

New 
Skills

Exit 

RD 
Sector Nace 2 ‐ digits
Food products and beverages              0,17              7,65            ‐0,04           17,86           45,36              0,38           25,76           18,05         44.911              3,23              1,74              0,05
Tobacco products              0,18              7,65            ‐0,01              6,20           63,73              0,00              0,23              0,09       170.549           64,21              1,74              0,04
Textiles              0,14              7,13            ‐0,15           13,12           30,04              0,11           25,44           12,41         45.129           15,82              1,46              0,06
Wearing apparel; dressing and dying 
             0,15              7,13            ‐0,20              6,35           34,00              0,22              5,12              7,25         40.593              4,98              1,26              0,05
of fur
Tanning and dressing of leather
             0,14              7,13            ‐0,07              7,01           31,67              0,05              3,28              4,30         33.151           11,00              1,32              0,09

Wood and products of woold and 
             0,16           11,34            ‐0,07           16,16           38,04              0,42           29,48              9,13         44.316              3,85              0,77              0,03
cork
Pulp, paper and paper products
             0,14           12,25            ‐0,09           19,83           37,71              0,02           37,59              4,61         90.479           13,65              0,63              0,03

Publishing, printing and reproduction               0,17           12,25            ‐0,10              9,42           41,89              0,37           14,38           15,17         56.639              4,66              0,62              0,06
Coke, refined petrolium and nuclear 
             0,13           12,98            ‐0,03           23,61           66,91              0,00              0,22              0,22       308.897           35,05              2,75              0,06
fuel
Chemicals and chemical products
             0,13           14,38            ‐0,12           15,34           53,25              0,04              4,03              5,22       108.274           80,42           12,30              0,06

Rubber and plastic produckts              0,15           11,64            ‐0,03           16,44           37,57              0,08              5,43              4,48         59.153           25,36              2,90              0,07
Non‐metallic mineral products              0,14           11,50            ‐0,04           16,04           42,20              0,16           11,10           12,22         62.477           12,61              1,25              0,09
Basic metals              0,13           11,34            ‐0,02           15,74           44,37              0,02           52,84              6,42         72.309           17,71              2,35              0,03
Fabricated metal products              0,15           11,34              0,05           11,61           32,34              0,69           17,75           15,40         49.517           11,26              1,08              0,03
Machinery and equipment              0,15           12,06              0,01              9,20           31,33              0,26           19,63           15,20         57.354           43,85              5,72              0,12
Office machinery and computers
             0,17           14,20            ‐0,03              8,68           34,64              0,01           26,39              5,41       222.966         104,86           14,92              0,22

Electrical machinery and apparatus
             0,17           14,20              0,03              9,90           32,39              0,16              2,62              4,10         65.960           54,03              7,51              0,14

Radio, television and radio 
             0,16           14,20            ‐0,07           18,05           38,27              0,06              1,91              2,67       135.798         241,00           27,56              0,22
transmitters
Medical, precision and optical 
             0,13           14,20              0,12              9,05           39,50              0,15              2,89              3,26         56.928           86,00           11,35              0,14
instruments
Motor vehicles, trailers and semi‐
             0,15           13,16              0,06           18,44           35,35              0,02              0,73              1,38         68.254           64,77              8,32              0,21
trailers
Transport equipment              0,12           13,16            ‐0,01           11,27           22,16              0,05              7,12              3,83         52.767           67,53              9,61              0,10
Furniture              0,15              9,71            ‐0,19           10,98           31,95              0,43           30,18           14,47         36.550           11,29              1,18              0,06
Recycling              0,20              9,71              0,03           24,36           52,85              0,02       106.762              3,63              1,18              0,02
Average of all              0,15           11,32            ‐0,04           13,75           38,66              0,17           15,55              7,72         83.544           42,21              4,92              0,09

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