The Employment Impact of Differences in Dmand and Production

Abstract

We use input-output techniques to assess the contribution of patterns of final demand and consumption to the differing employment rates observed across six industrialized economies. The key concept utilised is the employment generated economy-wide in supplying each product or service to final demand, including all stages in the supply chain - the concept of the ëvertically integrated sectorí (VIS). The main conclusions are: (1) On a VIS basis the relative employment-friendliness of demand in individual sectors remains fairly constant over time within countries and fairly similar across countries. The European economies are rather more similar to each other than to the US. (2) The employment-intensities of services and manufacturing are broadly equal, when measured on a VIS basis. (3) Final demands originating in both manufacturing and services are increasingly generating jobs located in services. (4) The changing patterns of final demand have been significantly employment-friendly in the European economies, but employment-neutral in the US. The final demand mixes of the European economies are more employment-friendly than the US pattern. The demand mixes of all the European countries would raise US employment, while the US mix would result in lower employment in the European economies. (5) The changing mix of consumption has been significantly less employment-friendly than final demand, and only a minor source of employment growth within each economy. The European consumption patterns tend to be less employment-friendly than that of the US. The consumption patterns of France and Germany would reduce US employment by 3-5% respectively, while those of the UK and Spain would have little effect. Conversely, if the US consumption mix were adopted in the European economies employment there would be 2-4% higher. (6) Demand growth has been the major source of employment growth, offset by job losses through labour productivity gains. Structural change along the supply chain, including outsourcing, both creates and destroys jobs, with only a small net effect. In the US stronger demand growth has brought more job creation, while weaker productivity gains have been less job-destroying than in the European economies. These are the major factors, which have opened up the employment gap.