The Employment Impact of Differences in Dmand and Production

resulted from its actual mix in the late 1990s). And in most cases the employment-friendliness
has been substantial, with an implied employment increase of over 12% for Germany⁹ and 10%
for the Netherlands. The US stands in contrast, as the only economy where the pattern of
demand changes has had an adverse effect on the level of employment; however this effect is
small. Taking the sources of change separately, the changing mix of demand within Services (step
1) has contributed to higher employment in each country except the US. In the case of Germany
the contribution has been particularly large (11%). The increase in the share of Services overall
in final demand has reinforced this everywhere, creating more employment in each economy
(step 2). The changing mix of Manufacturing industries, on the other hand, has tended to reduce
employment, except in the Netherlands, although the effects are not large (step 3). While the
overall effects vary somewhat in magnitude it is clear that the changing patterns of demand,
particularly towards and within Services, have contributed significantly to employment growth in
Germany, the Netherlands, the UK and France, while working marginally against it in the US.
This is clearly counter to the hypothesis that the increasing service-orientation of the US
economy has brought about its higher employment rate.

Employment growth over this period has proceeded at very different rates in the individual
economies, notably between the US and the European economies. It is therefore useful to
evaluate the impact of these shifts in the final demand mixes against the overall employment
growth achieved within the country. In the US total employment increased by over 36 million
FTEs over the 20 years; this represents an increase of 50% over its 1977 level, an annual
compound growth rate of 2%. Against this the (negative) contribution of the demand mix is
clearly trivial, equivalent to 5% of the employment growth which actually occurred over the
period, or less than the average growth in a single year. In the European economies employment
growth has been much lower, enhancing the significance of the positive effects of the changing
demand mix on employment there. Using the results from the counterfactuals at current prices,
changes in the mix of final demand, notionally at an unchanged level, contribute the equivalent of
one-third (36%) of the employment growth realised in Germany, 43% in the Netherlands, and
25% in Spain. In the UK final demand at an unchanged mix would have had a negative impact on
employment, equivalent to a loss of 1.2 million FTE jobs over the period; but that has been
more than offset by the effects of the changing demand mix, which contributed a gain of 1.8

⁹ The former East Germany is included in the 1997 input-output table for Germany but not in the earlier ones. Since
the analysis deals only with changes in ‘mix’ it is not affected by the size of the economy. However, re-unification
does imply that the changes in ‘mix’ are larger than would otherwise have occurred.

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