The Employment Impact of Differences in Dmand and Production

Introduction

It is often remarked that services are more labour-intensive than manufactured goods, and that
the growth of labour productivity in the production of services is less rapid than in
manufacturing. To the extent that the first of these generalisations is true, higher levels of
employment may be expected when demand patterns are oriented towards services. To the
extent that the second is true, the economy will be characterised by lower productivity growth
overall as the services sector becomes more important.

However, both of these generalisations are based on the final stage of production only - in the
case of services at the point of delivery. While the travel agent or pharmacist provides a face-to-
face service which itself is labour-intensive, it involves accessing databases collated and
maintained elsewhere, using software developed in other service sectors, and communications
links and electronic equipment bought in from manufacturing and construction. Production in
these sectors in turn requires a further range of purchased inputs, again drawn from both
manufacturing and services. While economic analysis tends to concentrate on final output and
the use of primary factors, much of the economy’s output and employment are involved in
intermediate stages of the production process. Although productivity gains may be difficult to
achieve in the face-to-face delivery of services, developments in information and
communications technology in earlier stages of the supply chain are now transforming the
overall efficiency of delivery in a number of areas of services.

Our purpose in this paper is to analyse the employment records of the six economies (US, UK,
Germany, France, Netherlands and Spain) focusing on the employment generated throughout
the economy by final demand and by the consumption expenditure of households. At the centre
of the analysis will be the linkages from final demand to employment through the production
structure. We will use detailed input-output systems for each country to identify inter-industry
supply chains and trace the employment generated at each stage.

The use of the input-output framework brings an important change to the perspective and
measurement of the employment generated by different activities. Conventional measurement

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