The Employment Impact of Differences in Dmand and Production

Employment in the US benefits from its orientation as a service economy. But even the least
favourable pattern, the UK one, would reduce US employment by only 2.4%. The more
favourable product mix within both Services and Manufactures in the European economies more
than offsets the limitation to their employment arising from the lesser share of Services relative
to the US.

See Table 7

Next we run the counterfactual in the reverse direction, applying the US final demand pattern to
each of the European economies. The results, presented in Table 8, largely endorse the previous
findings. Applied in a European context the US final demand pattern would result in a consistent,
and significant, loss of employment. Germany and Spain would be particularly adversely affected,
with reductions of around 9%. The US Service mix alone would cost each of the European
economies at least 5% of its employment (10% in Germany), although this would be partly offset
by employment gains from the higher US Service share in final demand and the US Manufactures
mix. The overall result, however, remains clearly and strongly adverse to employment.

The positive employment effect of the European Service mix in final demand derives
predominantly from the higher shares of Community, Social and Personal Services, and
Education in European demand patterns. Both of these industries rank in the top three most
employment intensive industries. The US, on the other hand, has a higher share of its final
demand for Services in Health and Social Work, in Hotels and Restaurants, and in Post and
Telecommunications, the last two of which are markedly less employment intensive.

See Table 8

The final possibility remains that the choices of the US consumer, in terms of the mix within the
consumption basket, may explain the higher US level of employment. Again we analyse this
firstly applying the five cross-country counterfactuals to the US, re-distributing US consumption
using the alternative country’s consumption mix of the late 1990s. As above, this alternative
consumption vector is combined with the US Leontief inverse and labour coefficient matrices.

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