4 The Employment Effects of Final Demand and
Consumption Mixes within the Six Economies
The previous section examined the employment implications of demand for manufactures and
services as aggregate categories, given the spillovers within the vertically integrated sectors. But,
as pointed out in section 3, there are substantial differences in employment-intensities between
individual sectors within these broad categories. This suggests that if the mix of industries in
demand patterns at the more detailed level coincide with the varying employment-intensities
significant differences could emerge in the employment generated by final demand or
consumption overall. We therefore now look at the employment implications of the detailed
demand patterns actually adopted in our six economies. The focus is on the composition of
demand i.e. the mix of products purchased, when the overall level is held fixed. We will look at
both total final demand and consumption. Total final demand covers all the sources that drive
employment: consumption expenditure by households, current and capital expenditure by
government, capital formation by firms and demands from abroad through exports, the last
being a major category in the European economies, notably the Netherlands. Taking final
demand as a whole also ensures that we include employment generated through healthcare and
education, where the public/private split in expenditure and therefore the extent to which they
appear in private consumption varies markedly across countries. We will give particular
attention to the role of private consumption, the most important component of aggregate
demand, and of increasing importance during the period analyzed. In addition, looking specifically
at consumption allows us to follow up on the literature investigating the growth of services in
consumption (Schettkat and Yocarini, 2003) by assessing the effects on employment.
We wish to examine the employment-friendliness of demand patterns both as they have evolved
within each country, and as they compare across countries. The analysis is based on
counterfactuals, through the construction of alternative final demand vectors (AFD). For
comparisons over time the AFD is based on the country’s demand mix in alternative years; for
comparisons between countries it is based on the demand mix of the comparator country. More
specifically, the construction of the ADF is carried out in three steps: in the first step we take
the original final demand vector and introduce an alternative service mix; in the second step, we
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