The Employment Impact of Differences in Dmand and Production

5 The Employment Effects of Demand and
Consumption Mixes across Economies

The previous Section established that, although the changing consumption mix has tended to
retard the growth of employment in the European economies, the changing mix in final demand
has had a much stronger positive effect. So the evolution of demand patterns within the
individual countries does not explain the superior US employment performance over the period.
We turn now to consider whether the US patterns of final demand and consumption are more
employment-friendly than in the European economies. In other words, has the evolution of the
US into a service economy given rise to its higher employment rates?

To analyse this we have run two sets of counterfactual analyses. Firstly we assess the
(counterfactual) implications for employment in the US of the mixes in final demand and
consumption which characterize the various European economies. Then we assess the
employment implications for each European economy of the alternative US final demand and
consumption patterns. For the counterfactual for the US the final demand (or consumption)
vector characterizing one of the European countries is combined, at the US level of final
demand, with the US inter-industry and employment structures (the Leontief inverse and labour
coefficients vector) to estimate the change implied for US employment by the European demand
patterns. In the counterfactuals for the European economies the simulation is run in the reverse
direction, applying the US demand pattern to each of the European economies (see equations
[3] - [5] above).

The estimated impacts of the European structures of final demand on US employment are
presented in Table 7. Looking first at the total effect (column (4)), far from being employment-
unfriendly, the final demand mixes of the each of the European economies would generate
higher levels of employment in the US. The effect is particularly strong for the demand patterns
of France and the Netherlands. The main contribution to this comes from the mix within
Services; employment in the US would be over 7% higher with the French pattern of demand for
Services (column (1)). On the other hand, evidence in support of the handicap to employment in
Europe from the lower share of Services overall in final demand emerges in column (2).

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