Norwegian industries exposed to international competition

Dividing the economy into exposed and sheltered sectors (E and S-sectors) is a key element in many macroeconomic contexts, not least with regard to determining wages. In theory, there is a sharp distinction between E-industries and S-industries. This distinction is not always easy to see in practice. In this study, we discuss some factors relevant to identifying exposed industries in Norway, which together make up the E-sector.

Degree of exposure

In principle, virtually all industries are exposed to international competition in one way or another, but to varying degrees. The distinction between exposed and sheltered is based on what proportion of an industry's value added is in exports, and the extent to which the domestic use of the industry's main products is imported. When an industry’s "degree of exposure" is above a certain limit, it is classified as an E-industry. Industries not classified as E-industries are considered to be part of the S-sector. The E-industries are divided into the following sub-groups:

• Resource-based industries
• Suppliers to the petroleum industry
• Footloose industries

Footloose industries are defined as industries that have no connection to Norwegian production factors other than their workforce.

Only one manufacturing industry is sheltered

Extraction of oil and gas alone accounts for about half of all Norwegian exports, and the extraction industry is thus very dominant in the E-sector. Manufacturing makes up a large part of the other E-industries, and there is only one manufacturing industry; printing and reproduction of recorded media, that is not defined as exposed. Pipelines, extraction-related services, mining and quarrying, forestry, fishing and aquaculture, and international shipping make up the remaining E-industries.

E-sector employs relatively few directly

In 2012, the E-industries employed 14 per cent of all employed persons in Norway. Industries that are largely based on deliveries to the extraction industry accounted for 3 per cent, other industries directly and indirectly based on natural resources accounted for 5 per cent, while footloose industries employed 6 per cent. International shipping is regarded as a footloose industry. The mainland-based footloose industries, which are all manufacturing industries, accounted for 4 per cent of total employment.

High growth in supplier activity

Since 2000, economic growth in the exposed mainland industries has been relatively similar to the growth in the sheltered market-oriented industries, albeit slightly lower. The average annual growth in value added in the E-industries was 2.6 per cent compared with 3.1 per cent in the market-oriented S-industries. Overall activity in the footloose industries is similar to that of the E-sector as a whole, while natural resource-based industries have seen lower growth and supplier industries have had higher growth.

Profitability, measured as a ratio of the operating profit and factor income, had a similar development to the activity. Profitability has improved both in the exposed and sheltered market-oriented industries. The strongest improvements were seen in the export industries, footloose industries and supplier industries. The profitability of industries based on natural resources is highly sensitive to cyclical changes, but fell on the whole in the relevant period.

Not such high wage growth in mainland supplier industries

The increase in average hourly wage costs from 2000 to 2012 was slightly higher in the mainland exposed industries than in other market-oriented industries on the mainland. With the exception of one supplier industry; extraction-related services, where the wage growth was relatively high, the wage growth in the supplier industries is no higher than in the other exposed industries combined.

The analysis is based on the annual national accounts figures that were available in summer 2013.