The Employment Impact of Differences in Dmand and Production

See Figures 10a and 10b

The decompositions reveal clearly that aggregate employment changes are the outcome of a
two-way dynamic. In each of the economies the growth of final demand generates employment
expansion, but this is offset by employment losses due to productivity gains down the supply
chain (the VIS).¹² The contribution of structural change, via input-output linkages, is small
everywhere. In the US, where employment expanded by over 35 million FTEs over this period,
the growth of final demand generated the equivalent of 60 million FTE jobs, with a further 4
million from the changing inter-industry structure, while 28 million were eliminated by
productivity growth. By contrast, in the UK, France, the Netherlands and Spain labour
productivity gains almost exactly offset the employment expansion generated by demand
growth, leaving FTE employment almost unchanged.

Figures 11-16 show the decompositions by major sector, again on the VIS basis, for each ofthe
six economies. The same dynamic applies widely. For ‘Manufactures’ (i.e. non-service products)
only in the US and Germany has growth in final demand generated more jobs than have been
eliminated by the labour productivity gains achieved throughout their supply chains.¹³ In the
Netherlands and Spain the changing pattern of inter-industry linkages in the supply of
Manufactures has been on balance job-creating, generating a significant number of additional jobs
in conjunction with demand growth to balance the employment losses from rising labour
productivity. The UK and France, on the other hand, have seen falls in the employment
generated by ‘Manufactures’ as the expansion of demand has been weak relative to productivity
growth while changes in input use along the supply chain have been on balance job-destroying.

See Figure 11 - Figure 16

Within Services the big impetus to employment change has come from Community, Social and
Personal Services, Wholesale and Retail Trade, and Real Estate and Business Services. The same

¹² In this context the effect of demand subsumes both the change in level and the change in mix. However, since the
analysis above indicated that the effect of mix to be small it is clear that growth in the level predominates.

¹³ The employment change in Germany consequent on reunification particularly enhanced the role of Manufacturing.

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