Edited by Pascal Petit and Luc Soete
Chapter 4: Structural dynamics and employment in highly industrialized economies
4. Structural dynamics and employment in highly industrialized economies Ronald Schettkat and Giovanni Russo 1. INTRODUCTION The demand side of the labour market is signiﬁcantly underrepresented in economic analysis and most explanations of high and persistent unemployment in the industrialized countries focus on labour supply rigidities caused by labour laws, unions, insider power and so on. Explanations of unemployment which take demand into account usually focus on the aggregate level but abstract from structure. However, industry structure may well be important in explaining international as well as intertemporal differences in economic performance. Without doubt, industry structure as measured in employment and nominal output has changed dramatically over recent decades. Industrial economies have been transformed into service economies. Manufacturing, after its peak at the end of the 1960s or early 1970s (Singh, 1995), has declined almost everywhere. In the meantime, service industries have expanded. However, it is not clear how this shift should be interpreted since the institutional division of national accounts data leaves the sources of change to speculation. Structural change may be caused by changes in ﬁnal demand patterns, as theories of the hierarchy of needs suggest, but it may also be the result of unbalanced productivity growth and constant ﬁnal demand patterns measured in real terms. Finally, a changing industry structure may also be caused by variation in the inter-industry division of labour caused either by the movement of tasks to specialized ﬁrms and industries (outsourcing) or by capital–labour substitution. In this chapter we analyse not...
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