The Employment Impact of Differences in Dmand and Production



Abstract

We use input-output techniques to assess the contribution of patterns of final demand and
consumption to the differing employment rates observed across six industrialized economies.
The key concept utilised is the employment generated economy-wide in supplying each product
or service to final demand, including all stages in the supply chain - the concept of the ‘vertically
integrated sector’ (VIS).

The main conclusions are:

(1) On a VIS basis the relative employment-friendliness of demand in individual sectors remains
fairly constant over time within countries and fairly similar across countries. The European
economies are rather more similar to each other than to the US.

(2) The employment-intensities of services and manufacturing are broadly equal, when measured
on a VIS basis.

(3) Final demands originating in both manufacturing and services are increasingly generating jobs
located in services.

(4) The changing patterns of final demand have been significantly employment-friendly in the
European economies, but employment-neutral in the US. The final demand mixes of the
European economies are
more employment-friendly than the US pattern. The demand mixes of
all the European countries would raise US employment, while the US mix would result in lower
employment in the European economies.

(5) The changing mix of consumption has been significantly less employment-friendly than final
demand, and only a minor source of employment growth within each economy. The European
consumption patterns tend to be
less employment-friendly than that of the US. The
consumption patterns of France and Germany would reduce US employment by 3-5%
respectively, while those of the UK and Spain would have little effect. Conversely, if the US
consumption mix were adopted in the European economies employment there would be 2-4%
higher.

(6) Demand growth has been the major source of employment growth, offset by job losses
through labour productivity gains. Structural change along the supply chain, including
outsourcing, both creates and destroys jobs, with only a small net effect. In the US stronger
demand growth has brought more job creation, while weaker productivity gains have been less



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