The Employment Impact of Differences in Dmand and Production

See Figures 17 - 22

The analysis of consumption brings the role of Services to centre stage, and accentuates the
findings on the relative roles of demand growth and productivity gains that emerged in the
analysis of final demand. The growth in consumer demand for Services has made a major
contribution to employment generation. Although their relative importance varies somewhat,
the same sectors tend to come to the fore in each economy: Wholesale and Retail Trade;
Community, Social and Personal Services (except in the Netherlands and, to a lesser extent, the
UK); Real Estate and Business Services. The contribution of Hotels and Catering (in the tourist
industries) is particularly notable for Spain. The European economies show striking gains in
labour productivity which are not paralleled in the US, except in Wholesale and Retail Trade. In
the majority of cases demand growth has been sufficient to absorb these productivity gains while
increasing employment overall. There are, however, some conspicuous exceptions, notably
Community, Social and Personal Services in the Netherlands and France, reflecting the
increasing role for the public sector in these sectors during this period (see also Schettkat and
Damen, 2003), and Wholesale and Retail Trade in France and Spain. As would be expected,
‘Manufactures’ play a much smaller role in consumption than in final demand as a whole. More
strikingly, consumer demand for Manufactures has been a significant source of net job loss
everywhere. In terms of job generation Manufactures have been caught in a double whammy;
the shift of consumption in favour of services has led to weaker demand growth at the same
time as Manufactures have been delivering strong productivity gains along their supply chains.

We now summarise the insights into the US-EU employment gap which can be gained from the
decompositions. In the US the employment-creating effects of demand growth have been strong
relative to the job-destroying effects of labour productivity gains. Employment creation has been
mainly supported by consumption, (except in ‘Manufactures’); the strength of demand growth
and relative weakness of productivity gains are each particularly striking in supplying the
consumer. In the case of both demand growth and productivity the effects have been heavily
concentrated in a relatively narrow range of sectors. Three areas of final output have provided
the bulk of the employment growth: Wholesale and Retail Trade, Community, Social and
Personal Services, and Real Estate and Business Services. Demand growth in these three sectors
through their VIS supply chains has created 28.5 million new FTEs out of a total increase of 36

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