View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

Projections of
The Post-Vietnam
Economy, 1975
Bulletin 1733
U.S. DEPARTMENT
OF LABOR
Bureau of
Labor Statistics




JUN 2

1972

DOCUMENT COLLECTION




The Post-Vietnam
Economy, 1975
Bulletin 1733
U.S. D E P A R T M E N T
O F LABOR
J. D. H odgson, S ecretary
BUREAU OF LABOR STATISTICS
Geoffrey H. Moore, Commissioner
1972

For sale b y the Superintendent of D ocum ents, U .S . G overnm ent Printing Office
W ashington, D .C . 20402 - Price 45 cents







Preface

This report was prepared in the U.S. Department of Labor’s Bureau of Labor
Statistics, Office of Economic Trends and Labor Conditions, Division of Economic
Growth, with the financial assistance of the U.S. Arms Control and Disarmament
Agency. The Arms Control and Disarmament Agency has broad responsibility for the
conduct of research on the economic and political consequences of arms control and
disarmament. Pursuant to that responsibility, the Arms Control and Disarmament
Agency has sponsored numerous studies dealing with the measurement of the economic
impact of defense and disarmament, and the problems of economic adjustment to
changes in defense spending. Henry Wyner of the Economic Affairs Bureau of the Arms
Control and Disarmament Agency provided liaison for this research.
The Federal Government expenditures assumptions of this study do not represent
the policies of any agency of the Federal Government. They were drawn up by the
Bureau of Labor Statistics as being within a reasonable range of possibilities to illustrate
the potential patterns of growth in the U.S. economy by 1975. The estimates are within
the framework of looking at future national output presented in the E c o n o m ic R e p o r t
o f th e P r e s id e n t , F e b ru a ry 1 9 7 1 , chapter 3, and th e B u d g e t o f th e U .S. G o v e r n m e n t f o r
F isca l Y e a r 1 9 7 2 , part 3, “Perspectives,” extended to include employment implications.
The research was performed by the staff of the Division of Economic Growth.
Ronald E. Kutscher, Chief of the Division of Economic Growth, was responsible for
direct supervision of the projections and for preparation of the report. Eva E. Jacobs
developed the macro projections, developed the projections of output per man-hour, and
assisted in writing the report. Donald P. Eldridge prepared total final demand estimates;
Richard P. Oliver prepared the projections of military expenditures; William I. Karr
developed the projections of input-output coefficients; Thomas F. Fleming, Jr.
developed the projections o f State and local governm ents; non d efen se Federal
projections were by Arthur J. Andreassen; Kenneth R. Tyree prepared the projections
of gross private domestic investment; Charles T. Bowman projected exports and
imports, and assisted in developing the macro projections; and Steven C. Cochran
prepared the projections of personal consumption expenditures.
A detailed description of the techniques used in developing each step of these
projections is available upon written request to the Division of Economic Growth of the
Bureau of Labor ^Statistics. It follows, in general, the methodology developed in BLS
Bulletin 1672, P a tte rn s o f U .S. E c o n o m ic G r o w th , which provided projections to 1980.
The input-output bill of goods for selected historical years and 1975, in total and for
each component of demand, in 80 sector detail, the direct requirements input-output
matrix, the inverse matrix, and the interindustry employment table for 1975 also are
available upon written request to the Division of Economic Growth. These data are
available also in computer useable format, such as punch cards or magnetic tape for a
small charge. For further details, contact Ronald E. Kutscher, Division of Economic
Growth, Office of Economic Trends and Labor Conditions, Bureau of Labor Statistics.




in

Contents

Chapters:
1.
2.
3.
4.
5.

Page

Summary and im plications..................................................................
Employment implications of changing government expenditures..................
Potential GNP, income and d em an d ...................................................................
Changes in employment, output ........................................................................
Alternative m o d e ls...............................................................................................

1
9
16
23
28

Tables:
1. Average annual rate of change for selected economic factors, selected
periods, 1959-75 ...............................................................................................
2. Average annual rates of change of gross national product by major
component, selected periods, 1959-75 ...........................................................
3. Total civilian employment by major sectors, selected years, 1959-75 ..........
4. Components of gross national product and average annual rates of change,
1969-75 ..............................................................................................................
5. Federal Government purchases of goods and services and average annual
rates of change, selected years, 1959-75 .........................................................
6. Employment effects of defense purchases.........................................................
7. Defense employment requirements for selected sectors, selected years,
1969-75 .............................................................................................................
8. Federal and State and local expenditures, selected years, 1965-75 ...............
9. Employment generated per billion dollars of State and local government
purchases by selected final demands, 1975 ...................................................
10. Labor force, employment, hours, productivity, and gross national product. .
11. Derivation of personal income and average annual rates of change, selected
years, 1959-69 and projected 1975, model I .................................................
12. Gross national product and average annual rates of change, selected years,
1959-70 and projected 1975 ...........................................................................
13. Government budgets (NIA concept) and average annual rates of change,
selected years, 1959-70, and projected 1975 .................................................
14. Civilian employment and average annual rates of change, by major sector,
selected years, 1959-70 and projected 1975 .................................................
15. Trends in output and employment selected industries, selected periods,
1959-69 and projected 1969-75 .....................................................................
16. Labor force, employment, hours, productivity, and gross product, 1969 and
projected 1975, for 3 economic m o d e ls .........................................................
17. Components of gross national product and average annual rates of changes,
selected years 1959-70 and projected 1975 ...................................................
18. Value of air and water pollution control equipment by producing industries,
1975 ....................................................................................................................
19. 1975 State and local government expenditures by activity, basic and
environmental model ....................................
20. Average annual rates of change, output and employment, selected sectors,
projected 1969-75 .............................................................................................
21. Average annual rates of change, output and employment, selected sectors,
projected 1969-75 .............................................................................................




IV

4
5
5
6
9
10
11
13
14
16
19
20
22
24
26
29
30
31
32
33
33

C h a p t e r I.

Summary a n d Imp lica tion s
the differential effects on employment, direct and
indirect, of selected nondefense purchases by govern­
ment and the private sector.

This report presents projections of the U.S. economy
in 1975, under the assumption that the withdrawal of
U.S. forces in Vietnam will be completed and full
employment achieved. The projections are based on
econometric and interindustry models, which are used to
simulate possible conditions of peace and international
arms limitation. These estimates may contribute to a
better understanding of the macroeconomic and indus­
try-employment adjustments that might be needed if the
1975 peace-time full employment economy is to be
achieved. Because the effect of changing defense require­
ments on employment cannot be analyzed in isolation
from the effect of other categories of demand on
employment, the projections cover the entire economy,
not just those sectors affected directly by changes in
defense expenditures. The projections are based on three
alternative models; each assumes a reduction in defense
expenditures as American combat forces are phased out
of the fighting in Vietnam. The first model contains a
level of defense spending in real terms somewhat above
the pre-Vietnam level, and a level of residential construc­
tion in 1975 consistent with meeting national housing
goals. Model II is an environmental model with higher
expenditures than model I for nonresidential construc­
tion, producer durable equipment, and State and local
government spending all related to environmental prob­
lems. These increases are offset by lower expenditures
for residential construction. Model III contains a lower
level of defense under the assumption of an arms
limitation agreement. The projections were developed by
using the major assumptions in each of these three
alternative models to develop aggregate economic vari­
ables, and estimating the resulting effects on output and
employment by industry.
To further highlight the effect of a shift in spending
from defense to nondefense, an analysis is presented of

Assumptions

The results of the study are dependent on the
assumptions underlying the projections. Obviously, dif­
ferent assumptions could result in different projections.
The basic assumptions for model I are summarized in
Exhibit A below and discussed in greater detail in later
chapters.
In line with the assumption of a full employment
economy, the unemployment rate is assumed to decline
to 3.8 percent by 1975.1 This is based on the further
assumption that fiscal and monetary policies will be able
to achieve a satisfactory balance between low unemploy­
ment rates and relative price stability, so that the rise in
the GNP deflator slows to a rate comparable to that
which prevailed in the early 1960’s.
If another unemployment rate, such as 4.5 percent,
had been assumed for 1975, the rate of growth in real
1
In this report, all historical data and projections are
presented for the years 1959, 1965, 1969, 1970, and projected
1975. The year 1959 was selected as the earliest year for
comparison for which all data on output and employment are
available on an industry basis consistent with the classification
system used in this study. The years 1965 and 1969 encompass
the expansion period o f the Vietnam war. The 1959-65 period is
a period o f comparable length to the projected period where the
econom y was operating or moving toward operating at full
utilization o f resources in a period free of large scale war.
Growth rates are shown for 1959-65, 1965-69, and 1969-75. The
1969-75 period is considered indicative o f peak to peak grow th

so that growth rates are not distorted by the 1970-71 slowdown
in economic activity. The 1970-75 implications are indicated
later, however.

Exhibit A . Assumptions for Model I, compared with data for selected years

Category

1959

1965

1969

1970

Projected
1975
model I

Unemployment rate (p e r c e n t)...........................................
Armed forces (thou san ds)...................................................
Federal purchases o f goods and services:
Billions of current dollars ...........................................
Billions o f 1958 d o lla rs................................................
Grants-in-aid (billions o f current d o lla r s ).......................
Federal transfer payments to persons (billions o f
current dollars) ..................................................................

5.5
2,552

4.5
2,723

3.5
3,506

4.9
3,188

3.8
2,500

53.6
52.5
6.8

66.9
57.9
11.1

99.2
73.8
20.3

97.2
65.4
24.4

114.1
66.0
39.8

20.1

30.3

50.4

61.2

100.0




1

GNP would have been lowered by about 0.1 percent per
year for the 1969-1975 period. While this would give a
slightly lower level of real GNP by 1975, the impact of
the lower GNP would not appreciably alter the industry
distribution of demand, output, and employment, and
thus would not in any significant way alter the results
presented in this report.
The withdrawal of armed forces from Vietnam is
assumed to have been completed by 1972, with the
exception of some support and logistical troops, and the
level of armed forces is assumed to drop to 2.5 million
by 1975. The assumed mix of Federal government
policy is a major influence on the economy. Federal
purchases of goods and services (in real terms) are
assumed to decline as a result of the end of the war to a
level in 1975, which is $8 billion higher (1958 prices)
than in 1965 just prior to the large scale Vietnam
buildup, but $15 billion lower than in 1968, the peak
year for the Vietnam era. Federal grants in aid to State
and local government are assumed to almost double
from 1969 to 1975 (in current prices), as a result of
continuing Federal policy in this direction.2 Transfer
payments to persons, consisting largely of social security
benefits, and other retirement pension payments, also
are expected to double (in current prices) from the 1969
level. For the purpose of these projections, it was
assumed that 1969 tax laws will remain in effect,
incorporating only future changes called for by present
social security legislation and the Tax Reform Act of
1969.
2
Whether these grants are in the form o f grants as
constituted, or in the form o f revenue sharing does not change
the results as presented here, since both forms would constitute
grants in the accounting system used in this report.

Also assumed in these projections is that the national
housing goals as called for in the Housing and Urban
Development Act of 1968, and as set forth in the
Second Annual Housing Report to the Congress are
achieved by appropriate government and private policies,
including an assumption of a drop in the interest rate.
This goal translates into 2.7 million housing units in
1975.
This set of assumptions, with the resulting projec­
tions, is termed the basic model, or model I. Two other
models were developed to introduce specific desired
variations in the pattern of demand. The general
economic outlook and potential GNP and employment
are the same, but selected changes in demand were made
to determine the effect on output and employment of
such changes. Model I, II, and III assumptions are shown
in Exhibit B below.

Alternative models

The first of the alternative models has a lower level of
residential construction, about 2 million in new housing
units in 1975, rather than the 2.7 million in model I.
This level of residential construction may still be
consistent with achieving the housing goals over the
1968-78 decade, if a different time path prevails with
higher starts in 1971-74. Since the supply GNP is the
same as in model I, the lower residential demand is
offset by increases in other parts of the economy. With
the current interest in improving the environment, it was
assumed that the offset demand would be related to the
now
desire to solve som e o f these problem s. M odel II is called
the environmental model and contains higher demand
for nonresidential construction, producer durable equip-

Exhibit B. Models 1,11, and III, compared with data for selected years

1969

1970

2.7
4.5
1.5

3.5
3.5
1.5

3.2
4.9
1.5

2.5
3.8
2.7

2.5
3.8
2.0

2.4
3.8
2.0

43.4

58.9

51.9

47.0

47.0

44.0

56.8

71.9

74.0

95.0

100.0

103.0

22.3

24.5

24.2

30.0

30.1

30.1

44.0

Armed forces (millions) ...................................................
Unemployment rate (p e r c e n t ) ........................................
Housing starts (millions)1 ................................................
National defense expenditures (billions o f
1958 d o lla r s )....................................................................
State and local purchases (billions of
1958 d o lla r s )....................................................................
Nonresidential construction (billions of
1958 d o lla r s )....................................................................
Producer durable equipment (billions o f
1958 d o lla r s )....................................................................

55.7

54.4

78.0

81.9

81.9

1 Public and private starts, but excludes mobile homes.




1975 Projections
Model
Model
Model
I
II
III

1965

Item

2

as grants and transfers have continued to rise beyond the
estimates in this report, because of price and workload
increases and new legislation. It is assumed that projec­
tions of government expenditures based on actual 1971
expenditures or later budget proposals would be dif­
ferent from those contained in this report. Changes such
as the recent devaluation have not been incorporated
into these projections. However, the potential GNP and
employment and the relative dimensions of the demand
components are considered valid for the purpose of
examining manpower requirements by industry.
Of course, uncertainties are involved in the projected
variables and assumptions affecting growth. Neither
major new dimensions nor contractions in the role of
government in the economy are contemplated. A con­
tinuation of government activity, as stated in present
legislation or existing policy, was assumed. Although no
major shifts in government’s role is projected, some
shifts in the expenditure mix at the various levels of
government are expected.
Defense expenditure estimates are subject to a great
deal of uncertainty, because of possible changes in the
international situation. Even within the level of defense
expenditures contained in these projections for 1975,
the distribution could change because of a change in the
defense strategy affecting the mix of weapons systems in
force. Another shift would be introduced by the
approval of a- volunteer army, and the resulting sharply
higher pay for servicemen. The effects of this change
could be to divert a larger share of defense spending (in
current prices) to salaries, and a smaller share to
procurement. Other possibilities are that total defense
spending would be increased to cover increased pay
costs, or that such costs would be compensated for by a
smaller armed force. Also, the Nation could have about
the same level of real defense expenditures as projected,
but this could be accompanied by bigger price increases,
which would result in a higher level of defense purchases
in current prices by 1975. Of course, all of the
uncertainty regarding the defense budget is not con­
cerned with whether it would be higher. International
tensions could continue to ease, a comprehensive arms
control agreement come about, or a reduction in defense
spending could result from increased demands from
other segments of the economy. All of these factors
considered, the defense projections in the basic model
are recognized to be necessarily approximate, but within
the range of reasonable possibilities.
Labor force participation of women may continue to
grow at a faster rate than presently projected. Participa­
tion rates for women at all levels of education have been
increasing. A further increase may be in order in the
future, since participation rates tend to increase with

ment, and State and local government services, all
related to environmental protection.
Model III is the arms limitation model. In this model,
defense expenditures are projected $3 billion (1958
dollars) lower in 1975 than in the other two models. In
1975 dollars, the decline is estimated to be $5 billion.
This lower expenditure is consistent with the assumption
of an arms limitation agreement, calling for a freeze of
the number of strategic weapons. Such an agreement
does not show large immediate reductions in defense
expenditures by 1975, but larger amounts would ac­
cumulate over a longer time from not purchasing new
weapons. To be consistent with the armament reduction,
the level of the armed forces is lower in this alternative
model by 100,000. State and local expenditures, largely
for housing and urban development are assumed to be
the offset in the arms limitation model.
These alternative models were not prepared for the
purpose of identifying the “best” path for the economy,
but to provide a framework for evaluating the employ­
ment effects of alternative public or private policies.
Individual decisions affecting the economy—
for ex­
ample, decisions by private firms regarding additional
investment—
normally are made by weighing economic
factors affecting the individual unit involved, including,
of course, certain manpower considerations. The cumu­
lative effect of these individual economic decisions
becomes important in determining the general level of
employment and its distribution among industries and
occupations. By providing 1975 projections under three
alternative models, a basis is established for indicating
how alternative policies and actions can alter the
distribution of employment. From the viewpoint of
public policy, these projections in turn can imply
alternative programs dealing with the availability of
needed skills, training, and retraining programs, and the
need for possible relocation of workers from labor
surplus to labor shortage areas.
In addition to the three complete models resulting
from different demand assumptions, a briefer analysis
was prepared showing alternative employment effects
per billion dollars of different types of construction and
State and local government activity. This was under­
taken because of the growing importance of State and
local government expenditures, and the concomitant
interest of the Federal Government in these activities.
Qualifications

The assumption about Federal expenditures which
affects the projections contained in this report is based
on the long range estimates set forth in the fiscal year
(FY) 1971 budget document. Federal expenditures such




3

additional education. Lower birth rates might permit
more women with children to enter the labor market
sooner than in earlier years. Establishment of better day
care centers and equal pay achievement could encourage
younger women to enter and stay in the labor force.
Because of uncertainty concerning the expected birth
rate as well as the difficulty of discerning whether shortrun deviations, particularly during the Vietnam war
period, represent a new long run-trend, the participation
rates projected for 1975 reflect the long-term trends.
Average hours may continue to decline faster than
now anticipated. This factor may be tied to the labor
force change in that the availability of large numbers of
persons (particularly women with young children)
wanting to work part-time may stimulate the continued
increase in the use of part-time workers. However, total
hours would not necessarily change under this alterna­
tive, since the lower average hours would be offset by a
larger number of employees. A faster decline in hours
was not selected since sufficient time has not elapsed to
establish a clear trend, particularly until the influence of
the peak Vietnam years, 1965-69, and cylical changes
for 1970-71 can be isolated from the long-term trend.
Output per man-hour could vary from historical rates.
Tendencies toward a different rate of increase might
result from: (a) a shift in employment to industries with
lower levels, and slower increases in output per man­
hour such as the service sectors; these are the industries
where it may be most difficult to introduce faster
productivity through application of technology; (b)
increased part-time employment and lower standard
workweek which increase productivity because of less
fatigue and boredom; (c) the big increase in the labor
force among young, better educated adults; this factor
may have a positive influence on productivity even
though this group has a lack of experience; (d) shifts in
research from defense to nondefense activities leading to
new technological breakthroughs; (e) the substantial
capital expenditures in recent years that should pay off
in productivity gains during the years immediately
ahead; (f) efforts directed toward pollution abatement
may adversely affect productivity growth.
On net balance, since many of these effects would be
offsetting and are difficult to assess as to extent, the
projected growth rate in productivity for the farm and
nonfarm sectors is projected at the post-World War II
historical rate, in addition to an allowance for reaching
that rate from below trend during 1969-70.

would reach a level of 935.0 billion in 1975 (1958
dollars) under each of the alternative models, a rate of
increase similar to the rates of increase in the previous
periods selected for comparison. (See table 1.) Although
the potential growth of the economy is 4.4 percent a
year measured from two points of reasonably full
utilization of resources, a different outlook results from
using 1970, a year with a great deal of slack. The growth
in real GNP required from 1970 to reach the 1975 level
is 5.3 percent a year. (The rate is 6.2 percent a year from
the level at end of 1971.) The relative growth of the
public and private sectors is somewhat different over the
projected period. The projected growth in private GNP is
close to the period 1959-65 before the Vietnam war,
because the GNP growth in the war period 1965-69 was
influenced by the high military requirements, and its
resulting high growth in public GNP, the constant dollar
wage and salaries of government employees.3 Govern­
ment GNP is projected to grow more slowly in the
future as military needs level off and State and local
government increases decelerate.
The 1965-69 period saw an unusual surge in the labor
force, and a drop in the unemployment rate. Though
average hours dropped, the employment growth was
sufficient to increase total man-hours substantially. The
labor force increase is expected in the projected period
to return to a trend rate more nearly like the 1959-65
rate. Average hours are projected to continue to decline
slowly through 1975, but the decline would occur
without the employment spurt that results from taking
up the unemployment slack (using 1969 as a base).
Consequently, the increase in total private hours will
slow down. Such a spurt happened in 1965-69. Produc­
tivity is projected to increase at a rate sufficiently higher
than the long-term trend rate to make up for the slow

3
Public or government GNP is not the government purchases
of goods and services, which includes compensation o f em ploy­
ees as a component.

Table 1. Average annual rate of change for selected eco­
nomic factors, selected periods, 1959-19751
Economic factors
Total GNP (1958 dollars). .
Total employment (jobs
concept) ............................
Private G N P .........................
Total man-hours...........
Output per man-hour
Public GNP2 .........................

Summary of potential GNP and its composition

The potential growth rate of the econ­
omy, 1969-75, is projected at 4.4 percent a year, it

P o te n tia l G N P .




1959-1965 1965-1969 1969-1975
4.4

4.1

4.4

1.6
4.6
1.1
3.5
3.0

2.9
4.1
1.7
2.4
4.6

1.4
4.6
1.2
3.3
1.2

1 Compound interest rates between terminal years.
2 See footnote 3 above.

4

provisions of the tax reform law which result in
increased personal income because of higher personal
exemptions. The projected rate of increase for gross
private domestic investment also is higher than historical
patterns, largely because of the rate of growth of
residential structures. Nonresidential fixed investment is
also projected to increase somewhat faster than private
GNP, spurred by the increasingly important business
purchases of computers and anti-pollution equipment.
Federal government purchases will decline because of
the assumptions concerning military activities. On the
other hand, State and local purchases are projected to
continue increasing but at a moderate rate because of
slower rates of increase for education that will result
from the projected lower public school enrollment.

1965-69 increase, but future productivity no longer
would benefit from the shift of low productivity farm
employment to nonfarm employment, which was a
factor in the 1959-65 rate of productivity increase.
Composition o f demand. Some change in the structure
of demand GNP is projected. (See table 2.) For instance,
personal consumption expenditures are projected to
increase faster than historical rates as a result of the
assumed large increase in transfer payments, and the
Table 2. Average annual rates of change of gross national
product by major component, selected periods, 1959-751
(Billions of 19 58 dollars)

Major components

GNP .....................................................
Personal consumption
expenditures ..........................
D u ra b le s ................................
N o n d u ra b le s ........................
Services ................................
Gross private investment . . . .
Nonresidential fixed
in v e s tm e n t........................
Residential structures . . .
G o v e r n m e n t................................
Federal Governm ent . . . .
State and local
government . ..................
E x p o r t s .........................................
Im p o r t s .........................................

1 9 59-6 5 19 65-6 9

Projected
19 69-7 5
Model I

4 .4

4.1

4 .4

4 .4
7.3
3.3
4 .5
5.1

4 .2

4 .6
4 .0
3 .5
5.7
5.8

7.0
- 0.6
3.2
1.7

4 .8
- 0.8
6 .5
6. 3

5.1
7 .8
4 .8

6.1

Output and employment. The major sectors showing the
fastest rates of increase between 1969 and 1975 are
those which to a considerable extent have been in­
creasing rapidly in the last 10 years. (See table 3.) The
projected high consumer expenditure demand will lead
to increased output and employment in services, a de­
velopment which would parallel the recent expansion in
this sector. State and local government purchases imply
a large increase in employment within these govern­
ments. Wholesale and retail trade are projected to be
significant sources of new job opportunities. High
residential construction demand would lead to a large
increase in employment in construction. This, of course,
would be a departure from past trends, in which
construction, output, and employment have not shown
significant increases. The four sectors—
construction,

6.2
3.0
4 .5
3. 3

6.7
11.5

5.1

10.0
1.4
- 1 .9
4 .8
5.6
4 .6

1Com pound interest rate between term inal years.

Table 3. Total civilian employment by major sectors, selected years, 1959-751

Econom ic sector

1970

1969

Projected
1975
Model I

T O T A L .........................................................................
Agriculture, forestry, and fisheries ................................
M in in g ........................................................................................
Construction .........................................................................
Manufacturing ......................................................................
Durable ............................................................................
N o n d u ra b le ......................................................................
Transportation, com m unications, and public
u t ilit ie s ..................................................................................
T rade ........................................................................................
Finance, insurance, and real estate ................................
S e rv ic e s .....................................................................................
Private h o u s eh o ld s................................................................
G o v e r n m e n t............................................................................
F e d e r a l...............................................................................
State and l o c a l ................................................................

8 3 ,0 8 0
3 ,9 3 2
65 4
4 ,2 0 8
2 0 ,5 4 5
1 2 ,119
8 ,4 2 6

8 3 ,2 9 3
3 ,7 2 9
659
4 ,1 1 7
1 9 ,756
11 ,438
8 ,3 1 8

9 1 ,4 3 0
3 ,3 5 0
620
5 ,1 0 0
2 1 ,2 9 5
1 2 ,495
8 ,8 0 0

4 ,6 3 3
17 ,274
3 ,8 9 6
1 3 ,4 1 2
2 ,3 2 2
1 2 ,204
2 ,7 5 8
9 ,4 4 6

4 ,7 0 2
17 ,614
4,021
13,817
2,281
12,597
2 ,7 0 5
9 ,8 9 2

4 ,9 3 5
18 ,9 4 0
4 ,4 5 0
15 ,9 5 0
2 ,2 4 0
14 ,5 5 0
2 ,7 5 0
11 ,8 0 0

1 Em ploym ent is a count of jobs rather than persons. It is
higher than an em ploym ent count based on persons, because
many individuals hold more than one job. E m p loym en t includes




Average annual rate of change 2

1 9 59-6 5

1.6
- 3 .6
- 2 .3

1.2
1.3
1.7

0.8
0.1
1.6
2.5
3.8

0.2
3.8

1.0
4 .7

19 65-6 9
2.7
- 4 .2
- 0 .5
1.3
2.7
3 .3
1.9

1 9 69-7 5
Model I

1.6
- 2.6
- 0 .9
3 .3

0.6
0 .5
0.7

2.2

1.1

3.0
3.7
4 .8

1.5

- 2.8
4 .9
3 .8
5.2

2.2
2.9
- 0.6
3 .0
- 0.1
3 .8

wage and salary workers, self-employed persons, and unpaid
fam ily workers.
2 Com pound interest rate between term inal years.

5

wholesale and retail trade, services, and State and local
governments—
which accounted for about 50 percent of
total jobs in 1969 are projected to account for over
three-fourths of the increase in jobs for the 1969-75
period.
The manufacturing sector, on the other hand, is not
projected to be a significant source of growth in
employment, 1969-75. Although growth in output is
expected to equal or exceed the overall growth in the
economy, on the average, most of it could be accommo­
dated by increased productivity. The growth in employ­
ment which took place in 1965-69 was largely attribut­
able to increasing defense activities during this period.
Growing private and government activities do not
require as much manufacturing output as defense pur­
chases, because they demand relatively more from the
services sector and direct government employment than
goods. Within the manufacturing sector are widely
divergent trends, as this sector contains some of the
fastest growing industries, like computers and plastics as
well as the declining defense-related industries, ordnance
and aircraft.

that GNP was changed to include the different assump­
tions about residential construction and defense ex­
penditures. (See table 4.)
The changes assumed in the distribution of demand
are not radically different from the distribution of
demand in the basic model, so that the influence of
these alternatives on output and employment is limited.
In the environmental model, the lower residential
construction is only partially offset by higher nonresidential construction for pollution control. Therefore,
output and employment in the construction sector is
projected to have slower growth, 2.3 percent a year in
the alternative model, compared with 3.3 percent in the
basic model. Within the manufacturing sector, the
general industrial machinery and service industry
machinery industries, which produce pollution control
equipment, show larger increases than in the basic
model.
The arms limitation model results in further negative
prospects for the defense-related industries, ordnance
and aircraft, offset by increased State and local govern­
ment and construction employment.

Alternative models. The major emphasis in this bulletin
is on the basic model. The two alternative models
described earlier were developed to analyze the effects
of selected alternative assumptions on output and
employment by industry.
In developing the alternative models, the factors
affecting overall GNP in the three models were similar so
that the total GNP is the same, but the distribution of

Comparative employment requirements. The composi­
tion of projected industry employment is influenced by
the size of demand components and industry mix and
levels of productivity of the industries supplying the
demand. By computing employment in terms of unit
labor requirements, i.e., employment, direct and indi­
rect, per billion dollars of final demand, employment
generated by different types of demand can be com-

Table 4. Components of gross national product and average annual rates of change, 1969-75
(Billions o f 1 9 58 dollars)
Average annual rate
of change 1

Projected 1975
GNP components

Gross national p r o d u c t ..................................................
Personal consumption e x p e n d itu re s ..................
Gross private domestic in v e s tm e n t.....................
Nonresidential ..................................................
Residential ........................................................
Change in inventory ......................................
N et e x p o r ts .................................................................
E x p o r ts .................................................................
Im p o r ts .................................................................
Governm ent ..............................................................
F e d e r a l.................................................................
State and local ..................................................

1969

72 4.7
4 6 9 .3
10 9.6
80.1
23.1
6.4

0.1
4 8 .5
4 8 .3
14 5.6
73 .8
71.9

1970

72 0 .0
4 7 5 .9

102.2
78.6
21 .3
2.3
2.4
52.2
4 9 .8
139.4
65 .4
74.0

Model
II

Model
III

9 3 5 .0
6 1 4 .0
15 6.0
10 8 .0
4 1 .0
7.0
4 .0
6 7 .3
6 3 .3
16 1.0

9 3 5 .0
6 1 4 .0
15 0.0

9 3 5 .0
6 1 4 .0
15 0.0

112.0

112.0

5.1

66.0

3 1 .0
7.0
4 .0
6 7 .3
6 3 .3
167.0
6 7 .0

9 5 .0

100.0

3 1 .0
7.0
4 .0
6 7 .3
6 3 .3
16 7.0
6 4 .0
10 3.0

Model
I

Model
II

Model
III

10.0
- 0.8

4 .4
4 .6
5.4
5.7
5.0

4 .4
4 .6
5.4
5.7
5.0

- 0.8

- 0.8

—

—

—

4.4
4 .6

6.1

5.6
4 .6
1.7
- 1 .9
4 .8

5.6
4 .6
2.3
- 1.6
5.7

1 Com pound interest rate between term inal years.

S O U R C E : Historical data are fro m the U.S. D epartm ent of
Com merce, O ffice of Business Economics. Projections are by the
Bureau o f Labor Statistics.




Projected 1 9 69-7 5

Model
I

6

5.6
4 .6
2.3
- 2 .3

6.2

pared without the influence of the size of the demand
components that result from a particular set of assump­
tions. In chapter II, unit employment requirements per
billion dollars are compared for selected construction,
State and local activities, and defense expenditures. The
data show that State and local operational activities
generate more employment per billion than defense
expenditures, but that defense generates more than
construction. The extent of this difference is influenced
by the concepts and definitions of the national ac­
counting system.

engineers, and blue-collar workers. The adjustments will
be made more difficult by the relatively low growth
projected for manufacturing, a large source of blue-collar
employment. Consequently, many personal adjust­
ments such as relocation and lower salaries may be
necessary, as well as retraining programs by both
industry and the government. For cities or regions
specializing in defense work or aerospace production,
continuing economic adjustments are probable.
The analysis of employment related to defense
expenditures shows that while defense related jobs have
declined 1.7 million over the FY 1968-71 period, a
further drop of 700,000 is expected from FY 1971 to
CY 1975. Of this total, somewhat over 100,000 will be
in the private sector. The remainder will be in the armed
forces (500,000) and civilian employment of the Depart­
ment of Defense (100,000). The continuing decline in
defense-related jobs reinforces the need for public and
private efforts to ease these adjustments as much as
possible.
The continuing decline in farm employment pro­
jected for 1975, while far from new, does present
continuing problems because usually this farm employ­
ment is shifted to already congested urban areas. This
shift will entail further pressures on the cities to provide
jobs and housing and schools and hospitals for the
continually expanding urban population. At the same
time rural areas will be faced with maintaining economic
viability with a declining tax base, which will make it
difficult to maintain public facilities.
The projected increase in government employment
and service employment has implications for the increase
in productivity and GNP. In the service sectors, produc­
tivity increases are difficult to achieve; in government,
by definition, no measures of productivity increase can
be derived. Employment increases in the service sectors
imply increasing difficulty in achieving previous overall
rates of increase in productivity. A slower rate of
increase in productivity results in lowering the potential
rate of growth in real GNP. At the same time, these
shifts in employment are taking place, a significant
increase in anti-pollution expenditures is expected to
take place, which may further lessen the rate of
productivity and real GNP increase.

Implications of the projections

General implications. This bulletin does not differ in its
major conclusions concerning employment trends from
those previously made by the Bureau or from those
made by other government agencies and private indi­
viduals. The continuing decline of agricultural employ­
ment, the increasing importance of state and local
government activity in the economy and in total
employment, the shift in employment towards the
service sectors, diminished importance of the manufac­
turing sector as a source of employment growth— of
all
these trends have been noted in other research and are
reinforced by the present study. In addition, this
bulletin contains a good deal of detailed information
which, it is hoped, highlights other areas of concern.
The projections to 1975 show very rapid rates of
growth in potential real GNP and output per man-hour
from the 1970 levels. In only one previous recovery,
1961-66, was the growth in real GNP as high as the
projected 5.3 percent a year for 1970-75 and, of course,
the year 1966 saw a significant increase in military
purchases. The difficulties the Nation faces in reaching
the projected total GNP and employment include the
problem of recovery from the 1970-71 recession, in
which unemployment was 5.9 percent in the fourth
quarter 1971; continuing adjustment to the shift from
defense activities; and the necessity of improving the
recent rates of productivity increase.
The transition from defense activities to other activi­
ties would entail some problems. Although the projec­
tions to 1975 show unemployment at 3.8 percent, the re­
quired adjustment for localities and individuals may be
difficult. For the defense-related sectors, employment is
not expected to show any appreciable increase and may
show some further slight declines. Increased employ­
ment is projected for construction, wholesale and retail
trade, State and local government, and selected service
industries. The occupational composition of these sec­
tors is much different from the defense-related sectors in
terms of both highly skilled jobs, such as scientists and




Employment implications. Many of the sectors that are
projected to be a source of a high proportion of new
jobs already have encountered manpower problems. For
example, in the construction industry, filling many
highly skilled jobs is a major problem. Therefore, to
provide the number of workers to meet the projected
growth in construction requirements may call for an
increase and possible upgrading of present apprentice­

7

ship and training programs in a very short period of
time. This is a particularly difficult problem in view of
the present situation of high unemployment in this
sector. Large increases in the number of jobs in
wholesale and retail trade and personal services are
projected for 1975. These increases may require a
rethinking of the traditional low levels of compensation
in these industries.
In the medical and educational services sectors, and
to a lesser extent in business services, a two-level
manpower problem exists. First, a need exists to provide
additional training and educational facilities for occupa­
tions with a high skill or training requirement such as
medicine, nursing, accounting, and computer pro­
gramming as well as the whole range of paraprofessionals. At the same time, preparations must be made to
insure an adequate supply of individuals to fill the less
skilled jobs in hospitals and schools, such as those
concerned with maintenance, laundry, food preparation,
cleaning, and similar operations.
The large employment increases projected for State
and local government include expansion for policemen,
firemen, and sanitation workers, as well as professional




workers and associated clerical, administrative, and
maintenance personnel. Much remains to be done in
recruiting, education, and training and providing funds
to give proper wages to this rapidly expanding group of
workers.
The economy developing along the lines shown in the
alternative models for 1975 would have important
implications for a few sectors. Under either of the
alternative models, the expansion of construction em­
ployment would be less than under the basic model; this
difference would reduce slightly the problems of training
the skilled workers needed in this sector. Lower con­
struction would mean also slower growth for sectors
closely tied to construction such as lumber and stone
and clay products. Under the assumptions of an arms
limitation model, the decline in defense-related employ­
ment would be somewhat sharper and would heighten
the adjustment problems, particularly for the ordnance
and aircraft sectors. However, higher environmental
protection expenditures would mean sharper rates of
increase in output and employment in the general
industrial machinery, service industry machines, and
scientific and controlling instrument sectors.

8

C h a p t e r II.

Employment Implic ation s of C h a n g i n g
G o v e r n m e n t E x p e n d it u r e s
purchases were increasing at a very rapid rate (14.1
percent in current prices and 11.9 percent in constant
dollars). This period included the buildup of the space
program, the expenditures for which are a part of
nondefense purchases. From 1965 to 1969, the rate of
increase of these purchases slowed down considerably,
because the space program had peaked and also because
other Federal nondefense budgets were constrained as
resources were devoted to the Vietnam War effort. The
projection for nondefense purchases, at least from 1969
to 1975, is for a modest rate of real growth. However, if
1970 is used as the reference point, the historical rate of
growth of nondefense purchases, 1965-70, is 6.6 and 1.7
in current and constant dollars respectively, and the
projected growth rate (1970-75) is 6.9 percent a year in
current prices, and 3.8 percent a year in constant prices.
These figures show some moderate increase in the rate of
growth of these purchases and indicate that a larger
proportion is expected to be real increase.

Expenditures by the Federal Government have varied
effects on the economy, depending not only on the level
but the type. The major types of expenditures are (1)
direct purchases of goods and services, consisting of
purchases from the private sector and compensation of
government employees; (2) transfers to individuals,
largely social security benefits; and (3) grants in aid to
State and local governments. Purchases of goods and
services are dominated by purchases for defense. This
chapter will summarize the effect of defense expendi­
tures on employment and consider the employment
implications for some selected types of expenditures.
Even though defense purchases have risen sharply
because of the Vietnam War, they still represented in
1969 a smaller part of GNP than they had in 1959. (See
table 5.) Of course, the level and proportion that defense
expenditures were in 1969 represented an increase from
1965, the pre-Vietnam low. The 1975 projections of
defense purchases show a modest increase of 0.7
percent, 1969-75, in current prices, but in constant
(1958) dollars, they are projected to continue to decline
from their 1969 and 1970 levels. Defense purchases will
continue to take a declining share of national output.
The nondefense part of Federal purchases has shown
different trends than defense, and is projected to do so
through 1975. In the 1959-65 period, nondefense

Table 5.

Employment impact

To assess the changing effect of defense on the U.S.
economy, particularly on employment, a separate
analysis has been made. This analysis is made by
calculating separately the employment requirements,

Federal Government purchases of goods and services, and average annual rates of change, selected years,

1959-75
(Billions of dollars)

Purchases

Federal Governm ent Purchases:
Current D o ll a r s ............................................
National d e fe n s e ...................................
N o n d e fe n s e ............................................
Constant 19 58 Dollars ..............................
National d e fe n s e ...................................
N o n d e fe n s e ............................................
As a Percent of GNP:
Current Dollars
F e d e r a l.....................................................
National d e fe n s e ...........................
Nondefense ...................................
Constant 1958 Dollars
F e d e r a l.....................................................
National d e fe n s e ..........................
Nondefense ...................................

1£59

1965

1969

Projected
1975

Average annual rate of change 1
19 5 9 -6 5

19 65-6 9

1 9 69-7 5

2.4
0.7
7.7

5 3 .6
4 6 .0
7.6
5 2 .5
45.1
7.4

6 6 .9
50.1
16.8
57 .9
4 3 .4
14.5

9 9 .2
78.4
20 .7
73 .8
58 .3
15.5

9 7 .2
75 .3
21 .9
6 5 .4
50.7
14.7

114.1
8 1 .8
3 2 .3

3 .8
1.4
14.1

66.0

1.6
- 0.6

11.1

9 .8
7.3
2.5

10.7
8.4

10.0

8.1

—

—

—

7.7

—

—

—

2.2

2.2

5.8
2.3

—

—

—

9.4
7.0
2.3

10.2
8.0
2.1

9.1
7.0

7.1
5.0

—

—

—

—

—

—

2.0

2.0

—

—

—

9 .5

1.6
11.0
9 .5

1.6

1 Com pound interest rate between term inal years.




19 70

9

4 7 .0
19.0

10.3

11.8
5.4
6.3
7.7
1.7

11.9

- 2.2
- 3 .6
3.5

direct and indirect, for defense purchases.4 These
defense employment requirements by sector and for the
total are compared with total employment by sector and
in the economy in table 6.5 This analysis gives the
relationship between total jobs in an industry and those
supported, directly or indirectly, by defense purchases.
Total public (including armed forces) and private
employment attributable to defense purchases in fiscal
year 1965 was 5.8 million jobs—
this increased to 7.8 mil­
lion by FY 1968, declined to 6.1 million by FY 1971, and
is projected to further decline to 5.4 million jobs by
1975.6 Fiscal year 1965 represented the pre-Vietnam low
in defense spending and fiscal year 1968 represented the
peak procurement period for Vietnam. As part of total
employment, defense related employment showed an in­
creasing share during the Vietnam buildup (8.3 to 10.2
percent), had declined by FY 1971 to 7.7 percent of
4 This is accomplished by separately running the defense “bill
of goods” through an input-output employment table for each
of the respective years.
5 Data for each of the 82 sectors is available upon request.
6 The estimates for FY 1968 were previously published in
“Increases in Defense-Related Employment During the Vietnam
Buildup,” by Richard P. Oliver, Monthly Labor Review, Feb.
1970, pp. 3-10. Another article on this subject appeared in the
Monthly Labor Review, Dec. 1971.

employment, and is projected in 1975 to decline further
to 6.2 percent of total employment.
The pattern of defense dependency in the private
sector is similar to that found for the total economy. A
total of 2.1 million jobs in the private sector was at­
tributable to defense purchases in fiscal year 1965. By
fiscal year 1968, because of the large buildup associated
with Vietnam, the number had reached 3.2 million jobs.
By 1971, this had declined to 2.1 million jobs, In 1975,
the projections are for the private jobs related to defense
purchases to return to a level of 2.0 million jobs—
lower
than the level which prevailed in FY 1965. The employ­
ment effect in the private sector of defense purchases is
expected to be lower in 1975 than in FY 1965, in spite of
the fact that defense purchases (in real terms) are about
$4 billion higher.7 In fact, purchases from the private sec­
tor in 1975 compared with those in FY 1965 would be
even higher, because the 1975 defense budget is projected
to support 200,000 fewer military personnel and 28,000
military personnel and 28,000 fewer Federal civilian
employees which would release more funds (in real
terms) for purchases from the private sector. The
7
The level of defense purchases in table 5 is for calendar year
1965. If fiscal year 1965 (the pre-Vietnam low) is used, the 1975
level is about $5 billion higher in real terms.

Table 6. Employment effects of defense purchases1
As a percent of total em plo ym ent

Defense-related em ploym ent (thousands)
Sectors
F Y 1965 F Y 1968 F Y 1970 F Y 1971
To tal, defense generated 2 . . . .
Federal, m ilitary ..................
Federal, c iv ilia n .....................
Private b u sin ess.....................
Agriculture, forestry
and fisheries ...............
Mining .............................
C o n s tr u c tio n ..................
M a n u fa c tu r in g ...............
D u r a b le .....................
Nondurable ............
Transportation, com ­
munications, and
public u t ilit ie s ............
Wholesale and
retail trade ..................
Finance, insurance,
and real e s t a t e ............
Services ..........................

7 ,0 8 5
3 ,3 9 8
1,0 82
2 ,5 8 9

6 ,1 2 3
2 ,9 9 4

179

37
58
2,141
1,8 29
312

67
31
44
1,7 42
1,5 17
225

50
26
41
1,387
1,207
180

163

331

250

115

191

39
22 4

51
30 7

5 ,7 5 9
2 ,7 1 6
928

7 ,8 2 8
3 ,4 8 3

2,102

3 ,2 1 7

70
32
67
1,391

102

1,212

1,111

C Y 19 75

10.2
100.0

8.9

7.7

100.0

100.0

100.0

6.2
100.0

3 9 .3
3.9

4 0 .7
5.5

3 9 .3
4 .2

3 7 .6
3.5

3 2 .7
3 .0

1.5
5.0

2.5

1.8

6.1
1.8

5.0
1.3
8.7
12.9
2.7

1.4
4 .2
7.3

6.2

11.1
2.2

9.1

5 ,4 1 5
2 ,5 0 0
900
2 ,0 0 5
38
26
63
1,2 98

8.3

2.1

1.2

1.2
4 .5
1.5

1,112

12.1

186

2.4

10.9
15.9
3.9

21 4

166

4.1

7.7

5.6

4 .7

3.5

149

128

122

.9

1.4

1.0

.9

.8

46
26 0

40
244

43
24 9

1.3

2.6

1.5
3 .0

1.3
2.3

1.1
2.1

1.1
1.8

N O T E : E m p loym en t is wage and salary employees only,
except agriculture, which includes the self-employed and unpaid
fam ily workers. Data relates to a count of jobs rather than a
count o f persons.
1
The defense purchases used in these calculations
d iffe re n t from the national defense purchases in table 5. The
principal differences are th at national defense includes purchases




1,000
2 ,1 3 0

C Y 19 75 F Y 19 65 F Y 19 68 F Y 19 70 F Y 1971

7.9

2.2

by the A to m ic Energy Commission and stockpiling fo r national
defense purchases. Defense purchases do not include these items,
but reflect only the m ilitary activities of the D epartm ent of
Defense.
2
Includes a small effect on State and local governm ent not
are
separately shown.

10

phenomenon of larger real purchases supporting fewer
jobs is explained by changes in productivity which have
or are expected to take place, FY 1965 to 1975.
These estimates of defense-related jobs show a decline
of 28 percent in employment in the private sector from
the peak FY 1968 to 1975. Most of this decline had
taken place by FY 1971. In fact, the decline may be
somewhat sharper because defense expenditures in real
terms may reach a level somewhat below the 1965 level
between 1971 and 1975, and by 1975 already have
begun a gradual upturn.
The pattern of effects of defense purchases on
individual sectors is, in general, similar to that for the
total private economy. However, some sectors are
projected to stabilize at levels higher than pre-war 1965.
The general pattern over the period, increase in levels
between FY 1965-68, decline by 1975, is most vivid in
the important durable goods manufacturing sector. This
sector, which has over one-half the defense-related
private employment, showed a drop of 600 thousand
jobs from FY 1968 to FY 1971. However, only a small
further drop is anticipated by 1975. This sector of the
economy would be helped by the higher goods content
of projected defense expenditures. But this sector
contains industries with relatively high productivity, so
that the higher expenditures would generate less employ­
ment per dollar of expenditure and thus keep the level
of employment at about the 1965 level. In transporta­
tion, a decline of 160,000 is projected from the peak. In
these two industry groups, a significant part of this
decline had taken place by FY 1971. For transportation,
communication, and public utilities, the projected level
is about the same as the 1965 level. In nondurable
manufacturing and services, it will be slightly higher.
Two factors are behind the higher 1975 levels; in
services, productivity is lower than in other sectors and
the use of services per dollar of production is increasing
as are certain nondurable manufacturing products—
par­
ticularly synthetic fibers and plastics. In construction,

the resurgence by 1975 will be the result of resumption
of delayed projects.
The relationship of defense generated employment to
total employment by 1975 is expected to show in most
industry groups a lower ratio than in the pre-Vietnam
year of FY 1965. However, in durable manufacturing,
the projected 1975 ratio of 9.1 percent is significantly
lower than the FY 1965 level of 12.1, and about
one-half the peak Vietnam relationship of 15.9 percent.
This reflects the expected lower proportion of defense
expenditures in the GNP and increasing civilian demand.
For selected individual industries within these broad
sectors, data on generated employment is shown in table
7, and the relationship of total employment in chart 1.
In each case, the 1975 projected relationship is lower
than the defense employment ratio in that sector in FY
1965. In some sectors such as ordnance, machine shop
products, and transportation services, the difference is
very small. In other sectors, particularly communication
equipment, electronic components, and aircraft, the
projected 1975 ratio is considerably lower than FY
1965. The lower ratios in these sectors signify a growing
civilian segment coupled with stable or declining defense
requirements. By 1971, in many of these sectors, most,
but in no case all, of the adjustments to declining
defense relationships had taken place.
A limited number of industries are predominant in
any examination of defense-related employment. For
these sectors, an examination of the defense-related
employment in 1970 and 1975 is particularly important
for what it reveals about job prospects in these sectors.
In the next chapter, these sectors are examined from the
viewpoint of their overall job prospects, not just the
defense-related proportion. However, for these sectors,
the defense requirement is an important, if not the most
important, determinant of changing job prospects.
Aircraft, ordnance, and transportation were the
sectors in which employment related to defense pur­
chases rose the most on a percentage basis during the

Table 7. Defense employment requirements for selected sectors, selected years, 1965-75
(Thousands of jobs)

Sectors

F Y 1965

Ordnance ...............................................................................
Communications e q u ip m e n t............................................
Electronic c o m p o n e n ts .....................................................
A i r c r a f t ..................................................................................
Other transportation e q u ip m e n t ...................................
Transportation ................................ ...................................

138
195
82
331

TO TA L

..................................................................................




F Y 1968

F Y 1 9 70

F Y 1971

Projected
19 75

117

241
276
116
52 6
63
260

20 3
24 3
93
445
70
191

149
203
69
346
65
162

135
148
67
301
46
117

929

1,4 82

1,2 45

994

81 4

66

11

Vietnam buildup. These same sectors are being affected
most noticeably by the Vietnam phase out. Communica­
tions equipment and electronic components also in­
creased greatly during this buildup, but at slower rates.
In general, the defense requirements in Vietnam were
not as electronically oriented as defense purchases in

general. Other transportation equipment, which includes
shipbuilding, shows only small changes (relatively)
during the cutbacks. Shipbuilding has longer time
periods for construction and is influenced less by short
term defense decisions than other transportation equip­
ment.
The defense employment levels shown in table 7
indicate that for these six industries, such jobs have
declined 500,000 between FY 1968 and FY 1971. A
further decline of 180,000 is projected by 1975.
The picture of the defense industries near the bottom
of their expected employment decline is only half the
picture. Indications are that many individuals formerly
associated with the aerospace industries have not found
alternative employment. In general, the workers in
defense related industries have higher skill levels than the
average skill level in the other industries of the econ­
omy.8 With a high unemployment rate, difficulty arises
in placing these former defense workers in nondefense
occupations of equal skill and pay—
particularly in the
short run.

C hart 1.

Defense employment as a percent of total
employment, selected years, 1965-75

20

40

60

80

100

Ordnance

CY 19751

A ircra ft

Em ploym ent impact of alternative types of expenditures
Communications
equipment

As the war in Vietnam has wound down and defense
expenditures have been reduced, other Federal expendi­
tures have been rising, particularly for transfers to
individuals and grants to State and local governments.
Grants to State and local governments stimulate
spending by these governments for particular activities.
In addition, expenditures by State and local govern­
ments from their own revenue sources have increased
very rapidly in recent years. Table 8 shows the change in
Federal expenditures over time and projected under the
assumptions stated in chapter I. Clearly, the 1970 drop
in current dollar defense and nondefense purchases (even
greater in real terms) was more than compensated for by
increases in grants and transfers, and that this trend is
expected to continue and perhaps accelerate in the
future. Personal consumption expenditure increases and
State and local expenditures stimulated or financed
partly by grants have replaced declining direct Federal
purchases.
Each type of expenditure has a different pattern of
demand that requires the output of different industries.
Because each industry has a different level of productiv­
ity (employment requirement per dollar of output),
alternative expenditures may generate different total

Electronic
components

Other
transportation
equipment

Machine
shops

Nonferrous
metals

Scientific
instruments

Electric
equipment

Transportation
services




8
Richard Dempsey and Douglas Schmude, “Occupational
Impact of Defense Purchases,” Monthly Labor Review, De­
cember 1971, pp. 12-15.
12

employment generated by these purchases of materials
and services is added the employment required by the
construction activity itself to obtain the total effect.
All of this employment is in the private sector.9
For the two direct government operations, education
and health and welfare, employment generated in the
private sector by purchases is first computed. To these
are added estimates of the direct government employ­
ment involved in the operation. The total employment
generated covers both the private and public sectors.
The comparison is made per billion dollars of
expenditures to eliminate the influence of the relative
amounts spent for various functions either for the past
year or as assumed in these projections. Presentation in
this form allows the reader to use the estimates with
alternative levels of expenditures.
These estimates do not include the multiplier—
the
additional employment generated by the spending of
income of the employees involved in satisfying the
government purchase, and they do not include the
employment involved in supplying the additional capital
equipment that might be purchased as a result of
additional expenditures. If one could estimate this
factor, there might be greater variation among the
activities since some, like highway construction, may use
relatively larger quantities of heavy equipment.
Direct government expenditures, both Federal and
State and local, have a higher employment content per
billion dollars of demand than the private sector. Partly,
this disparity is the result of the way government output
is defined, since government product consists only of the
compensation of government employees. When the

employment requirements as well as different industry
distributions. These distributions are particularly impor­
tant in periods with rapid changes in the mix of demand
such as defense buildup or cutbacks.
What is the comparative employment effect of
various types of expenditures? Some preliminary work
along these lines for specific types of expenditures has
been done, mostly in the area of government expendi­
tures. Also, the distribution for total personal consump­
tion expenditures has been developed, but the pattern
would not necessarily be relevant for the expenditures of
persons whose income is derived from transfers. More
work needs to be done to determine consumption
patterns for welfare recipients, the aged, etc., to see
which industries receive the effects of their consumption
as distinguished from overall consumption expenditures.
Experimental work done indicates that, as one would
expect, food, housing, and medical care are the in­
dustries receiving the differential influences of accel­
erated transfer payments.
For State and local governments, expenditure pat­
terns for several types of activities have been prepared.
These have been translated into employment. They do
not exhaust all State and local expenditues, but are
important components of State and local spending.
Five areas of construction and two areas of State and
local operations have been selected for analysis. The
employment generated per billion dollars of purchases of
goods and services for these activities is summarized in
table 9. An additional column summarizing the Federal
defense expenditures effect is added for comparison. In
the construction sectors, the activity is not performed
by the government itself. Government purchases con­
struction from the construction industry, but to better
see the industries involved, these are treated on a “ first
order input” basis as though the government is buying
the necessary components from each industry. To the

9
Some government employment is involved in planning,
engineering, site acquisition and supervision of construction
contract performance. Their number is not known but addition
of this amount would not affect the basic conclusions.

Table 8. Federal and State and local expenditures, selected years, 1965-75
Percent distribution

Current dollars
Federal expenditures
19 65

T O T A L ......................................................................
Purchases ................................................................
D e fe n s e .............................................................
Nondefense .....................................................
Grants ......................................................................
T ra n s fe rs ...................................................................
Other .........................................................................

1969

1970

124.7
6 6 .9
50.1
16.8

19 1.3
10 1.3
7 8 .8
2 5 .5

11.1

20.2

3 2 .5
14.2

52.1
17.7

20 6.2
99.7
76.6
23.1
24.4
62 .0

State and local expenditures
T O T A L ......................................................................




20.1

Projected
1975
2 6 8 .0
10 8.0
7 7 .0
3 1 .0
4 0 .0

100.0
20.0

C urrent dollars
74 .5

118.9

131.2

13

1965

1969

19 70

Projected
1975

100.0

100.0

100.0

100.0

53 .6
4 0 .2
13.5
8.9
26.1
11.3

53 .0
4 1 .2
13.3

4 8 .4
37.1

4 0 .0
29 .0

10.6

11.2
11.8

27 .2
9 .3

30.1
9.7

12.0
15.0
3 7 .0
7.0

Grants as a percent of expenditures

201.0

14.9

16.9

18.6

20.0

government is purchasing its own output, therefore, it
purchases compensation only. However, when the gov­
ernment is purchasing private output, it is implicitly
purchasing profit and depreciation as well as compensa­
tion, so that the labor content of purchases from the
private sector is less than an equivalent level of purchases
of government output. Also, it is probably true that
certain government activities such as education and
health are relatively labor intensive. Defense, by reason
of the inclusion of all of the relatively low-paid military
personnel also shows a relatively high employment per
dollar of output.
For all the activities, the employment is broken down
between direct and indirect. Direct employment is in the
industry performing the activity; the indirect is in the
industries supplying materials and services necessary to
the activity.10
Within the construction category, the various types
generate similar amounts of total employment per
billion dollars of purchases, except for residential which
is noticeably higher. Within these totals, however, the
relationship between direct and indirect varies, indirect
exceeding direct in both residential and educational

construction. The indirect employment generated in
manufacturing by highways is lower largerly because of
the limited inputs in this activity compared with other
types of construction. However, the mining sector is
affected more by highways, because of heavy use of sand
and gravel. The residential construction sector tradi­
tionally makes substantial purchases through lumber
yards, rather than directly from the manufacturer, and
thereby has a larger than average input from the trade
sector. Also, residential construction has a much greater
employment effect in the lumber industry because of its
high lumber usage.
The construction activity has been compared with
two kinds of State and local operational activities—
edu­
cation and health, welfare and sanitation. Excluded from
these activities are construction of new facilities. Em­
ployment generated by State and local activities would
be lower if they included construction. How much lower
would depend on the weight of construction expendi­
tures in the total expenditures. The indirect employment
requirements for health, welfare, and sanitation resemble
the level of employment per billion generated by the
construction activities, because this operation involves
large purchases from other sectors. These purchases,
however, are about equally divided between goods and
services (other than own employees), but in construc­
10
The direct coefficients are based on extrapolations oftion, purchases of manufactured goods are great.
survey studies for different years. These have been adjusted
The indirect employment requirements for education
roughly for 1971 prices and 1975 productivity to put them all
are considerably lower than Tor the other activities,
on the same basis. See labor and material requirements studies
because of the relatively small amount of purchases from
for different kinds of construction, BLS Bulletins 1390, 1402,
outside the government. The noteworthy aspect of the
1404, 1441, 1490, 1586, and 1671 (1964 to 1971).

Table 9. Employment generated per billion dollars1 of State and local government purchases by selected final
demands, 1975
State and local
government
purchases2

Construction
Demand sectors
Highways

Residential3
Educational
Hospitals Sewers
construction
construction Education

Federal
purchases

Health

DOD

In d ire c t...................................................................
Agriculture, forestry, and fisheries . . . .
M in in g .............................................................
Construction (m aintenance)......................
M anufacturing...............................................
Transportation, communications and
public utilities ..........................................
T rade .............................................................
Finance, insurance, and real estate . . . .
S e rvices..........................................................
Direct (new construction).................................
Direct government ............................................

,21,730
260
1,183
265
9,748

28,495
1,536
287
309
14,507

21,481
342
264
233
11,952

20,407
440
229
199
12,647

22,512
389
288
235
12,815

13,434
839
249
1,156
5,515

25,996
1,424
330
827
8,275

28,440
567
307
1,198
17,374

2,726
2,818
982
3,748
26,257

2,763
4,844
967
3,282
26,604

2,061
3,074
761
2,794
26,470

1,818
1,764
777
2,533
21,919

2,202
3,109
752
2,722
19,913

1,984
1,119
651
1,921

2,380
2,137
1,012
9,611

2,335
1,875
581
4,203

90,585

54,045

47,372

Total

47,987

55,099

47,951

42,326

42,425

104,019

80,041

75,812

......................................................................

1971 prices.
Excludes construction.
Single family housing only.




14

forces, would be less under this assumption than under
the same expenditures with higher armed forces level.
The question analyzed in this section was the
employment level and industry distribution generated by
various types of demand with particular relevance to
defense activities. When the totals of employment per
billion are compared, clearly defense dollars diverted
toward construction will not generate as much total
employment, and money going into education or health
would produce higher employment than defense activ­
ity. In evaluating the employment effects on the private
sector, the range for most of the activities studied is
small; highway construction would be somewhat lower
than the other activities. However, one activity, educa­
tion, has per billion about one-half the effect on the
private sector of the other activities analyzed. Within
manufacturing, defense is higher than any other activity
covered; the others range down to education which
generates one-third the employment in manufacturing of
defense activities.
From this, it can be seen that diverting defense
dollars to other activities will have several effects. First,
if defense dollars go to construction, the effect on
employment will be small unless a larger number of
dollars are involved. If the defense monies go into
education or health, resulting employment will be
greater. In all cases in manufacturing, a larger amount of
money will be needed to maintain the same employment
level. In all of the activities studied, certain defense-re­
lated sectors, such as aircraft and ordnance, are involved
in nondefense activities to a considerably smaller extent
than they are in defense.
This shifting demand structure is brought into per­
spective by referring back to the previous part of this
chapter which showed that from FY 1968 (peak
Vietnam) to 1975, it is projected that 2.4 million fewer
job opportunities will result from defense activity and
from FY 1971, the decline in job opportunities is about
700,000. The range of expenditures necessary to absorb
that difference can vary considerably depending on the
type of demand.

education operation is the large number of direct
employees generated compared with the other activities.
The direct jobs in education consist of more than
teachers. Educational activities generate a large number of
supporting personnel in the form of librarians, adminis­
trators and specialists of many types, as well as
janitorial, maintenance, and food service personnel.
Also, public education includes the junior college and
college levels where the personnel-pupil ratio is very
high.
These relationships for education are based on the
experience of the recent past. They do not take into
account possible basic changes in the education process.
A massive shift to teaching machines or other computerassisted teaching obviously could affect purchases from
the private sector, but is not considered to be a
significant factor within the next five years.
Lastly, a comparison was made with employment
generated by defense expenditures of the Federal gov­
ernment (DOD). The indirect employment per billion is
largely in manufacturing, the level higher than that
generated by construction. The affected industries with­
in manufacturing are obviously not the same. Instead of
the emphasis on stone and clay, lumber, and steel, the
emphasis is on aircraft, ordnance, and communications
equipment. The direct employment requirements are
lower than for the two operating activities of State and
local government, but, of course, considerably higher
than construction. As was previously mentioned, the
direct includes the armed forces and Department of
Defense civilian employment. The armed forces alone
contributes almost half of the employment generated
per billion bollars of defense expenditures.
Because the armed forces are included, the defense
sector is particularly susceptible to the assumption as to
the content of the expenditures. The distribution be­
tween the size of the armed forces and material will
affect the direct-indirect employment relationship. De­
fense expenditures as noted earlier are assumed to
increase at the same time the Armed Forces are being
reduced. Total employment, therefore, including armed




15

C h a p t e r III.

Potential G N P, Income, a n d D e m a n d

Projection of potential GNP

The assumptions discussed in chapter I described the
general outline of the economy. The quantitative de­
termination of the dimension in terms of GNP and its
major income and demand components follow. First, the
potential GNP is projected to 1975, followed by the
associated income and demand components. The de­
mand components are then further projected to industry
detail. The present chapter is devoted to the projection
of potential GNP and its components.
Potential GNP was projected using a number of
factors that underlie economic growth, labor force,

employment, average hours, and output per man­
hour.11 Table 10 shows the derivation of the GNP for
the projected period (1969-75), and compares projected
growth with the pre-Vietnam period (1959-65) the peak
war period (1965-1969), the most recent year, and
1975. In discussing growth rates to 1975, reference will
be to 1969-75 growth rates, to discuss generally the
movement of the economy during periods of growth at
or near its potential.
11A detailed description of the methods used to derive
potential GNP is available on request from Ronald E. Kutscher,
Chief, Division of Economic Growth.

Table 10. Labor force, employment, hours, productivity, and gross national product

Category

1959

1965

1969

1970

Projected
1975

Average annual rate
of change1

Model I
Total labor force (including armed fo r c e s ).................
70,921
3,740
U n em plo yed ................................................................
Employed (persons concept) .................................
67,181
Adjustment to jobs concept ...............................
3,496
70,677
Employment (jobs concept) .........................................
Government2 .............................................................
9,930
F e d e ra l.....................................................................
4,239
Military ................................................................
2,543
C iv ilia n ..................................................................
1,696
State and local .......................................................
5,691
P riv a te ...........................................................................
60,747
Agriculture .............................................................
5,519
N onag riculture.......................................................
55,228
'Average annual man-hours paid, p riv a te ......................
2,078
A g ric u ltu re ..................................................................
2,350
Nonagriculture ............................................ .............
2,051
Total man-hours (millions), p riv a te ............................... 126,221
A g ric u ltu re ..................................................................
12,972
Nonagriculture .......................................................... 113,249
GNP per man-hour (1958 dollars), p r iv a te .................
3.43
A g ric u ltu re ..................................................................
1.63
Nonagriculture ..........................................................
3.64
Total GNP (billions of 1958 d o lla rs )............................
475.9
G o v e rn m en t................................................................
42.5
Federal .....................................................................
20.2
Military ................................................................
10.2
C iv ilia n ..................................................................
10.0
State and local ........................................................
22.3
433.4
P riv a te ...........................................................................
Agriculture .............................................................
21.1
N onag riculture........................................................
412.3

77,177
3,366
73,811
3,878
77,689
11,994
4,569
2,732
1,837
7,425
65,695
4,338
61,357
2,051
2,376
2,028
134,781
10,307
124,474
4.21
2.30
4.36
617.8
50.8
21.8
10.9
10.9
29.0
567.0
23.7
543.3

1 Compound interest rate between terminal years.
2 The government employment used here is from the Office of
Business Economics in order to be consistent with the govern­
ment GNP. Elsewhere in this report, employment in government
is from the Bureau of Labor Statistics. There are conceptual d if­




84,240
2,832
81,408
5,598
87,006
14,727
5,529
3,463
2,066
9,198
72,279
3,587
68,692
1,991
2,304
1,975
143,912
8,263
135,649
4.61
2.93
4.72
724.7
60.7
25.9
13.7
12.2
34.7
664.0
24.2
639.8

85,903
4,088
81,815
4,709
86,524
14,483
5,109
3,096
2,013
9,374
72,041
3,416
68,625
1,966
2,288
1,950
141,624
7,816
133,808
4.66
3.06
4.75
720.0
60.6
24.3
12.5
11.8
36.4
659.4
23.9
635.5

1959-65

1965-69

1969-75

92,792
3,431
89,361
5,000
94,361
16,035
4,535
2,500
2,035
11,500
78,326
3,000
75,326
1,964
2,274
1,964
154,762
6,822
147,940
5.63
3.91
5.71
3936.7
65.3
21.9
9.9
12.0
43.4
871.4
26.7
844.7

1.4
-1 .8
1.6
1.7
1.6
3.1
1.2
1.2
1.3
4.5
1.3
-3 .9
1.8
- .2
.2
- .2
1.1
-4 .3
1.6
3.5
5.9
3.1
4.4
3.0
1.3
1.1
1.5
4.5
4.6
2.0
4.7

2.2
-4 .2
2.5
9.6
2.9
5.4
4.9
6.1
3.0
4.6
2.4
-4 .7
2.9
-0 .7
-0 .8
-0 .7
1.7
-5 .4
2.2
2.3
6.2
2.0
4.1
4.5
4.4
5.9
2.9
4.6
4.0
0.5
4.2

1.6
3.2
1.6
-1 .9
1.4
1.4
-3 .3
-5 .3
-0 .3
3.8
1.3
-2 .9
1.5
-0.1
-0 .2
-0.1
1.2
-3.1
1.5
3.4
4.9
3.2
4.4
1.2
-2 .7
-5 .3
-0 .3
3.8
4.6
1.7
4.7

ferences between the two sources which makes BLS government
employment about 400,000 lower.
3
This is GNP as derived. It has been rounded to $935 for use
throughout this report.

16

The unemployment rate assumed in 1975 would be a
decline from the higher 1970 level, but if 1969 is the
base, the 1975 unemployment rate is somewhat higher,
3.8 percent compared with 3.5 percent.

Labor force. The labor force is projected to increase,
1969-75, at 1.6 percent a year,12 a slowdown from the
most recent period but faster than the early 1960’s. The
slower rate is the result of two factors: in the 1965-69
period, the young people born in the immediate postwar
period had already begun to enter the labor force, and
further increases in labor force growth in the 1965-69
period resulted from the extraordinarily rapid increases
in women’s labor force participation. The completed
entrance of the former group into the labor force is
accounted for in the projection. As for women’s
participation, the assumption is that it will begin to
increase at longterm rates, until more evidence is
available on which to judge the permanence of the
unusually rapid growth during the 1965-69 period. A
rapidly increasing proportion of the labor force will be
in early career working ages, 20-34, thus providing
unprecedented numbers of employed persons. An esti­
mate of the total number of employed persons is derived
from the projected labor force, and the assumed levels of
armed forces and the unemployment rate.

Hours. Average hours for the nonfarm economy are
projected to decline slowly from 1969 to 1975 at .1
percent a year.14 Measured from 1965, however, the
projected drop approaches a rate of 1 percent a year.
Between 1965 and 1969, particularly in 1967, there was
a sharp, one-time drop in reported hours in almost all
sectors. Since then, the rate seems to have resumed its
trend decline, and a continuation of this trend is used in
the 1975 projections.
In the early 1950’s, the decline in hours resulted to a
considerable extent from a reduction in the scheduled
workweek. In later years, however, the increasing num­
bers of part-time employees contributed more to the
decline in hours than changes in the scheduled work­
week. During the 1960’s, as total employment increased
about 20 percent, voluntary part-time employment rose
70 percent in a persistent year-to-year pattern of
increase. This trend has been fortified by shifts in the
hours and days of operation in the trade and service
sectors, which are predominant employers of part-time
personnel.
The 1975 projections of average hours assumes a
continued increase in part-time employment as a percent
of the total, but no substantive reductions in the
standard workweek. Although some indications of pos­
sible change in the structure of the workweek have
occurred, for example, the 4 day week in some firms,
the influence on total average hours is expected to
be minimal by 1975. Government hours in these projec­
tions are assumed not to change.

Employment. The final purpose of this study is a
projection of employment by industry rather than just
total employment. Since the past industry employment
data with detailed sector disaggregations are based on
available data which are a count of jobs rather than
persons (many persons hold more than one job), total
employment must be translated into total jobs.13 The
adjustment factor between the two, which includes
statistical as well as coverage differences, has been erratic
in the past, but, for the purposes of this projection, has
been kept at about the 1969 level. Because this
adjustment factor between the two series is not esti­
mated to continue to increase, the rate of increase in
employment on a jobs concept is somewhat slower than
for the persons concept.
Employment (jobs concept) is projected to increase
to 1975 at a rate slower than the rate during the
1959-65 period. That period involved a drop in the
unemployment rate from 5.5 to 4.5 percent. The
projected rate of increase in employment is considerably
slower also than the 1965-69 rate. During the 1965-69
period, the employment increased from a combination
of an extraordinary labor force rise and a drop in the
unemployment rate, whereas in the projection the
unemployment rate is almost the same in the 2 years.

Output per man-hour. The early paragraphs of this
chapter pointed out the importance of separating the
farm and nonfarm sectors because of past effects on
overall private output per man-hour. This separation has
been continued, because the productivity trends and
levels have been and continue to be different, though the
effect of farm on the overall level of productivity is not
as significant as before.
The important projection is the one for the private
nonfarm sector, because it covers such a large part of the
total economy. The long-term rate of increase in output

14
The data on average hours used in making these projec­
tions are measures o f hours paid. Although it would be
preferable, at least from the viewpoint of productivity, to have a
measure of hours worked, such measures do not exist for
detailed industries.

12 Sophia C. Travis, “The Labor Force: Projections to 1985,”
Monthly Labor Review, May 1970, pp. 3-12.
13 This conversion is discussed further in the appendix. See
also the discussion in Patterns o f U.S. Economic Growth, BLS
Bulletin 1672, 1970, pp. 13 and 53-56.




17

per man-hour for this sector has been 2.8 percent a year.
The productivity rate increased from 1959 to 1965
somewhat faster than the long-term rate, but slowed to
2.0 percent increase in the 1965-69 period, as the
economy operated at consistent high levels of output
and very low levels of unemployment. Some of the years
in the 1965-69 period showed no increase at all. The
1975 projection implies a return to the average postwar
historical rate but uses 1967 as a base, thereby assuming
that the losses of the 1967-70 period will be made up as
output and employment climb to potential levels. Even
though total nonfarm productivity is projected at its
historical rate, individual industries may deviate from
the past rates.
In the past, increases in the farm sector have averaged
close to 6 percent a year as a result of rapid changes in
technology, and a continuing movement of employment
away from farms as the number of marginal farms
declined. In recent years, this rate has slowed down
slightly. Traditionally, farm output per man-hour has
fluctuated widely, and a rate of increase close to that of
the recent past is projected.
Government productivity is held constant to conform
to the national accounting system.15 The level and rate
of change in government output per man-hour is,
therefore, substantially different from the private sector.
As a result of this convention, the relative importance of
government employment influences the overall rate of
productivity increase. As government employment rises
substantially, as is expected for State and local govern­
ment employment, and its productivity is held constant,
the rate of increase in productivity for the total
economy will be lower than the projected increase in the
private sector alone.

GNP are derived from an equation adapted from the
Thurow econometric model.16
The rate of growth in total GNP from 1969-75 is
projected to be 4.4 percent a year, as a result of a rate of
4.6 percent for the private sector, and 1.2 percent for
the public sector. The implication is that an even greater
growth will be required to attain this potential from the
lower 1970 levels. From 1970, the estimated growth of
GNP required to 1975 would be 5.3 percent a year.
Components of gross product

Having estimated the potential GNP, a macroeconometric model was used to determine the income
and demand components of GNP.17 The advantage of
this model is that it provides a link between these
relationships, since production creates income and in­
come creates demand.18
Income components. The model estimates the various
components of aggregate income consistent with as­
sumed policies. The assumptions about government
policy that influence income are transfer payments to
individuals, social security taxes, the wage base, and
corporate and personal taxes.
The income components generated by the model are
shown in table 11. Since these components are not
involved directly in the derivation of output and employ­
ment, less examination has been made of the income
portion of the model than of the production function
and the demand aspects. Further work on the income
equations are necessary and will be undertaken. One of
the most difficult estimates to make is projections of
taxes, both corporate and personal. The Tax Reform Bill
of 1969 changed the kinds of allowable deductions and
personal exemptions rather than rates. The eventual
effect of these changes on effective rates is difficult to
estimate precisely, but has been accounted for by an
aggregate adjustment. Because of offsetting movements,
the disposable income level projected by the model

Potential GNP growth rate. By combining the projec­
tions of labor force, changes in hours and output per
man-hour, the 1975 private GNP is determined. Pro­
jected government product is added to the private
product to determine total GNP. For the Federal
Government, the projected number of employees and,
therefore, government GNP is exogenous, derived from
the assumptions about the armed forces and civilian
employment set forth in chapter I. For the State and
local government sector, employment and government

16 Lester Thurow, “A Fiscal Model of the United States,”
Survey o f Current Business, Vol. 49, No. 6, June 1969, pp.
45-64. Variables influencing State and local employment are (1)
the general level of economic activity represented by an estimate
of GNP, (2) grants-in-aid from the Federal Government, which is
an exogenous assumption discussed in chapter I, and (3) school
population, since over half of the employment in this sector is
for education. A detailed description o f the model is available on
request.
17 Ibid.
18 Exogenous price deflators are used to move from one
section of the model to the other.

1 s In the national income accounting framework, government
product is employment in government multiplied by an average
compensation per employee in base period prices. This assump­
tion means that all wage increases for government employees are
counted as price increases with no allowance for productivity
gains.




18

Table 11. Derivation of personal income and average annual rates of change, selected years, 1959-69 and projected
1975, model I

Components

1959

1965

1969

1970

Projected
1975
Model I

Gross national product ............................................
Less:
Capital consumption and corporate
profit .............................................................
Indirect business t a x .......................................
Social security contributions ......................
Plus:
Government transfers .............. ' . ..................
Interest .............................................................
D iv id e n d s ..........................................................
Other2 ................................................................
Personal in c o m e .............................. ...........................
Disposable personal income ............................
Disposable personal income (1958
d o lla rs )................................................................

Average annual rate of change1
1959-65

1965-69

Projected
1969-75

483.7

684.9

929.1

974.1

1,405.0

6.0

7.9

7.1

93.0
42.4
17.6

135.9
62.5
29.6

159.7
85.7
54.0

158.4
92.9
57.6

270.0
135.0
84.0

6.5
6.7
9.1

4.1
8.2
16.2

9.1
7.9
7.6

24.9
13.6
12.6
1.7
383.5
337.3

37.2
20.5
19.8
4.5
538.9
473.2

62.2
29.0
24.4
5.2
750.3
634.2

75.6
31.7
25.0
6.2
803.6
687.8

118.0
40.0
37.0
2.0
1,113.0
960.0

6.9
7.1
7.8
na
5.8
5.8

13.7
9.1
5.4
na
8.6
7.6

11.3
5.5
7.2
na
6.8
7.2

333.0

435.0

513.5

531.5

671.0

4.6

4.3

4.6

SOURCE: Historical data are from the U.S. Department of
Commerce, Office of Business Economics. Projections are by the
Bureau of Labor Statistics.
1Compound interest rate between terminal years.

2 Subsidies less current surplus of government enterprise and
statistical discrepancy,
na = not available.

seems to be reasonable when translated into personal
consumption expenditures.
The projection of GNP growth in current prices,
1969-75, is 7.1 percent a year. (See table 11.) This is
slower than the rate of increase from 1965-69, because
of the projected slowdown in the rate of increase of
prices. However, the projected rate of increase in GNP is
faster than the rate of increase, 1959-65, in this case,
because the projected rate of increase in prices is faster
than prevailed during that period. As shown in table 12,
the rate of increase in GNP, in constant 1958 dollars, for
these three periods are virtually the same. Therefore, the
difference in current dollar GNP reflects price differ­
ences. As discussed in chapter I, the projected price
assumptions are for a return by 1975 of low rates of
price change. However, the period 1969-75 includes the
very high prices increases of 1970 and expected higher
than average increases for 1971.
The rate of increase in government transfer payments
to individuals has been increased during the 1965-69
period at an exceptionally high rate of 13.7 percent a
year. The projections, 1969-75, are for a continued rapid
growth in this category at 11.3 percent a year, or a rate
more than half again as fast as the GNP increase. This
rate compares with the 1959-65 period, when transfer
payments were increasing at a rate only slightly faster
than GNP. The continued increase in transfer payments
follows from the assumption about growth of social
security payments and expansion of welfare payments.

Disposable personal income is projected to increase,
1969-75, at a rate of 7.2 percent a year, or slightly faster
than current dollar GNP. This projected rate of increase
is slower than the 1965-69 rate but faster than that for
1959-65. The change in rates, historical and projected,
reflect differences in the implicit price increases of this
category, historical and projected. Disposable personal in­
income in real terms will increase at 4.6 percent, or at
the same rate as during the 1959-65 period.




Demand GNP. The primary interest in the model for this
project was in the components of the demand side of
GNP, since these are the values that form the basis for
projecting demand by industry in the input-output
framework. Four major components of demand were
estimated by the model: personal consumption expendi­
tures, business investment, residential investment, and
State and local government expenditures. Net exports
and Federal government expenditures are exogenous.
The model is designed so that the sum of the demand
components does not necessarily add to the supply GNP.
They would not be equal if the incomes consistent with
the supply GNP did not generate sufficient demand. The
gap between supply GNP and demand GNP depends in
part on the government policies incorporated into the
model. If there is a gap, potential GNP, and its
associated desired unemployment rate, would not be
achieved unless the government altered its policies. The
model provides estimates of the effect of alternative
19

1. large increases in transfer payments and the lower
personal taxes resulting from the tax reform bill both
of which stimulate personal consumption spending;

combinations of policies that could be used to stimulate
demand to equal supply GNP or to reduce demand that
exceeds supply GNP.
The Federal Government may change its own pur­
chases of goods and services which operate directly on
demand, or it may change other variables which have an
effect on other demand sectors, mostly through income
effects. Personal, social insurance, and indirect business
taxes and transfer payments affect disposable personal
income and, therefore, personal consumption expendi­
tures. Corporate tax and depreciation policies affect
corporate incomes and, therefore, investment in nonresidential structures and equipment. Policies influencing
interest rates affect residential investment. Grants-in-aid
influence State and local purchases.
In this project, the assumptions about exogenous
factors and government policy have generated demand
consistent with the supply GNP so that there is no
supply-demand gap. In a sense, the gap which might have
existed has been closed by three major assumptions:

2. increases in Federal grants-in-aid which stimulate State
and local government spending;
3. assumed interest rates which stimulate residential con­
struction demand.

The demand components in 1975 consistent with the
assumptions are shown in table 12. The relative rates of
growth in each component reflect the effects of these
assumptions.
Personal consumption expenditures will rise at 4.6
percent a year, 1969-75, or at a faster rate than the GNP
and faster than this component has historically. This
faster rate of increase in personal consumption is
consistent with the lower personal tax liability, and
increased income partially spurred by government trans­
fer payments. Residential investment is projected to
increase at 10.0 percent a year, and achieve the level of
housing called for in the housing goals, which require a

Table 12. Gross national product and average annual rates of change, selected years, 1959-70 and projected 1975
(Billions of 1958 dollars)
Average annual rate of change1
Components

1959

1965

1969

1970

Projected
1975

Gross national product ............................................
Personal consumption expenditures ..............
Gross private domestic in v e s tm e n t.................
Nonresidential investm ent.........................
Residential structures.................................
Change in inven to ries.................................
Net e x p o rts ..........................................................
E x p o r ts ..........................................................
Im p o r ts ..........................................................
G overnm ent..........................................................
Federal ..........................................................
State and local ............................................

475.9
307.3
73.6
44.1
24.7
4.8
.3
23.8
23.5
94.7
52.5
42.2

617.8
397.7
99.2
66.3
23.8
9.0
6.2
37.4
31.2
114.7
57.9
56.8

724.7
469.3
109.6
80.1
23.1
6.4
.1
48.5
48.3
145.6
73.8
71.9

720.0
475.9
102.2
78.6
21.3
2.3
2.4
52.2
49.8
139.4
65.4
74.0

935.0
614.0
156.0
108.0
41.0
7.0
4.0
67.3
63.3
161.0
66.0
95.0

1959-65

1965-69

Projected
1969-75

4.4
4.4
5.1
7.0
-0 .6
11.0

4.1
4.2
2.6
4.8
-0 .8
-8 .2

4.4
4.6
6.1
5.1
10.0
1.5

—

—

—

6.7
11.5
6.1
6.3
6.1

5.6
4.6
1.7
-1 .9
4.8

7.8
4.8
3.2
1.7
5.1

Percent Distribution
Gross national product ............................................
Personal consumption e x p e n d itu re s ..............
Gross private domestic in v e s tm e n t.................
Nonresidential investm ent.........................
Residential structures.................................
Change in in ven to ries.................................
Net e x p o rts ..........................................................
E x p o r ts ..........................................................
Im p o r t s ..........................................................
G overnm ent..........................................................
Federal ..........................................................
State and local ............................................

100.0
64.6
15.5
9.3
5.2
1.0

0.0
5.0
4.9
19.9
11.0
8.9

100.0
64.4
16.1
10.7
3.9
1.5
1.0
6.1
5.1
18.6
9.4
9.2

SOURCE: Historical data are from the U.S. Department of
Commerce, Office of Business Economics. Projections are by the
Bureau of Labor Statistics.




100.0
64.8
15.1
11.1
3.2
0.9

0.0
6.7
6.7
20.1
10.2
9.9

100.0
66.1
14.2
10.9
3.0
0.3
0.3
7.3
6.9
19.4
9.1
10.3

100.0
65.7
16.7
11.6
4.4
0.7
0.4
7.2
6.8
17.2
7.1
10.2

1Compound interest rate between terminal years.

20

sharp recovery from the low level of 1969 and 1970.
This increase in residential construction, 1969-75, is in
sharp contrast to the trend of residential structures in
earlier periods, when high interest rates and tight money
restricted the growth of residential construction and in
fact, led to declines during some periods.
Federal Government purchases of goods and services
will decline 1.9 percent a year as hostilities in Vietnam
end. From 1970, the Federal Government purchases of
goods and services in 1975 will be less than 2 billion
(1958 dollars) lower. Federal expenditures, in real terms,
are expected to decline through 1972 or 1973 and then
begin a gradual upturn. State and local government
purchases will continue to rise faster than GNP, but the
projected rate of increase of 4.8 represents a slowdown
from earlier periods. This slowdown will be partly the
result of slower rates of increases in school population,
which follows from the lower birth rates in the 1960’s.
Business investment is projected to increase a little
less than the rate during the high capital investment
years, 1959-65, but since it is still growing faster than
GNP, its share will continue to rise. The slower rate of
investment increase compared with the 1959-65 period
will be influenced by the higher corporate taxes esti­
mated to result from the tax reform bill, and from the
fact that the rate of increase during the 1959-65 period
was not sustainable.
Prices

Use of the Thurow model requires an assumption about
a set of GNP deflators for the overall GNP, and for all of
the components of demand. The model is not designed to
test the consistency of the unemployment and price as­
sumptions in terms of possible trade offs such as the famil­
iar Philips curve analysis. Prices are exogenous, and since
the same prices are used for inflation and deflation and do
not move very differently, they do not affect the relative
size of the demand components significantly. The overall
GNP deflator is exogenous and the component deflators
are estimated to be consistent with the overall deflator.
For this research, the overall level assumed would mean a
return by 1975 to the modest price increases prevalent in
the 1959-65 period. This effect on the model of these
price assumptions would result because the prices for the
demand components move at different rates over time.
The further the point from the base period (in this case,
1958), the greater the disparities in the deflators.
The deflators for government purchases of goods and
services significantly diverge from deflators for other
demand components after long periods of time, because




the national accounts treat wage changes for government
employees as price change. This has a unique effect on
the relationship between current and constant dollar
accounting for the government sector.
In the 1975 projections, derived by the Thurow
model with the conversion of the demand side of the
model to current dollars, a basic set of national income
accounts containing the elements for deriving govern­
ment budgets (NIA concept) are available. Normally, in
using this model, any changes in the budget resulting
from changes in government policy required to close a
possible demand-supply gap could be examined. Because
this projection has no gap, the implicit effect of the
assumptions which resulted in closing the gap, such as
taxes, transfers, etc., can be seen.
The revenue elements for the Federal Government are
available from the income side of the model: indirect
business taxes, contributions for social insurance, trans­
fer payments, and corporate and personal income taxes.
Purchases of goods and service by the Federal Govern­
ment are an exogenous part of the demand side of the
model as are other Federal exenditures, transfer pay­
ments to individuals (part of the income side), and
grants-in-aid to State and local government. State and
local revenue are derived similarly from the income side
with the addition of Federal grants-in-aid. The final
product of these rearrangements of components show
Federal expenditures and Federal revenue and the
surplus or deficit. Similar data for State and local
government are shown in table 13.
These projections show Federal receipts and expendi­
tures returning to a rate of increase similar to the pre-Viet­
nam, 1959-65, experience. In the projected period, how­
ever, assumed expenditures increase slightly faster than
projected receipts. The projected rate of increase of
Federal receipts and revenues are considerably slower
than the rates for 1965-69, when expenditures were
increased drastically to meet Vietnam requirements, and
revenues were increasing at very high rates because of
the income tax surcharge.
State and local receipts and expenditures are pro­
jected to increase at better than 9.0 percent a year,
1969-75, or somewhat faster than the 1959-65 rate, but
slower than the fast pace of 1965-69. The projected rate
of increase is aided by the projected increases in
grants-in-aid. Revenues and expenditures of State and
local government are projected to be in balance in 1975.
The projection of government receipts and expendi­
tures requires a clear statement about their limitations.
First, the price assumptions affect government expendi­
tures and revenues more than other components of the

21

model. Second, the estimates of the effect of the tax
reform bill are tentative. However, the budgets are
presented as being a useful step in tracing the possible

effects of changes in government policy. This proposi­
tion, of course, follows only if the economy is viewed as
described by the relationship of this model.

Table 13. Government budgets (N IA concept) and average annual rates of change, selected years, 1959-70, projected
1975
(Billions of current dollars)

Budgets

1959

1965

1969

1970

Projected
1975
Model I

Federal Government Budget
Receipts ................................................................
E xp end itu res.......................................................
Surplus or deficit ...............................................
State and Local Government Budget
Receipts ................................................................
E xp end itu res........................................................
Surplus or deficit ...............................................

89.7
91.0
-1 .3

124.7
123.5
1.2

196.9
189.5
7.3

191.5
205.1
-1 3 .6

277.0
268.0
9.0

46.0
46.8
-0 .8

75.5
74.5
1.0

119.0
118.9
0.1

133.4
132.9
0.5

201.0
201.0

SOURCE: Historical data are from the U.S. Department of
Commerce, Office of Business Economics. Projections are by the
Bureau of Labor Statistics.




0 .0

Average annual rate of change1

1959-65

1965-69

Projected
1969-75

5.7
5.2

12.1
11.3

5.9
4.6

—

—

8.6
8.1
—

12.0
12.4
—

1Compound interest rate between terminal years.

22

—

9.1
9.1
—

C h ap te r IV.

C h a n g e s in Employment, Output

In the input-output model used in these projections,
the projected demand by the final purchasers of the
economy triggers the process that results in estimates of
industry employment. The final demand by purchaser is
translated into demand for final products by industry
through the use of the input-output table of inter-in­
dustry relationships, which has been projected to
1975.19 The final product generates industry output not
only in the industry producing the final product, but
also in the industries supplying raw materials, parts and
services to the final industry. Employment-output rela­
tionships or productivity ratios then are applied to the
output generated by the input-output model to derive
the end product of this research, employment by
industry. Projections of the intricate relationships are
made at each step, making it possible to trace the effect
on employment of the set of assumptions discussed in
chapter I. These projections postulate a full employment
economy in a nonwar situation with specified govern­
ment policies concerning transfers, grants, and taxes.
Estimates of industry employment result from these
assumptions, as do all resulting projections through the
separate steps of the model.
Civilian employment by major sector is shown in
table 8.20 Data for recent past periods are provided for
comparison. These tables show some noteworthy trends
in what is projected under full employment. Total
civilian employment is projected to increase from 83.1
million in 1969 to 91.4 million jobs by 1975, or an
increase of nearly 8.4 million jobs. Trends for total
employment and among major sectors generally reflect
longer term trends shown in 1959-65. However, some,
such as manufacturing, show growth distinctly slower
than that which prevailed during th e ’'Vietnam war
period. In general, all sectors will have slower growth
rates in the 1969-75 period than during 1965-69.
Construction, however, is projected to grow at rates
distinctly faster than either of the periods shown here.
Part of the projected slowdown in total employment
growth reflects the expected return of productivity to its
longer term rate, which would be a distinct improvement
over productivity gains for 1965-69. From 1969 to
1970, total employment rose by less than 300,000. The

projections imply an increase of over 8 million jobs from
the 1970 level.
Sector changes

Despite a steadily rising total
output of goods to unprecedented levels by 1975, the
goods-producing industries encompass the only major
industries in which employment is expected to declinemining and agriculture-and one industry-m anufac­
turing— which employment growth is expected to be
for
slower than during the 1960’s. Only one goods-pro­
ducing industry, construction, is expected to show a
quickened pace of employment growth through the
early 1970’s. This modest employment expansion for
goods-producing industries, in the face of an overall
healthy increase in output, reflects their anticipated rise
in productivity.
In agriculture, small gains in output and continuation
of the trend to large farms will result in a projected
decline in employment of 600,000 by 1975. Although
the rate of decline is somewhat slower than in the past,
there is no indication of the end of the migration out of
this sector. This sector is projected to account for less
than 4 percent of total employment in 1975 compared
with 4.7 in 1969 and 8.6 percent in 1959. (See table
14.)
Mining employment has been declining for many
years because of above average gains in productivity and
decreased demand, particularly for coal. Mining is
projected to have the lowest rate of increase in output
among all nonfarm industries. Continued employment
declines are projected through 1975, although at a
reduced rate because of some resurgence in the demand
for coal.
Manufacturing, still the biggest sector, is expected to
remain as the largest single source of jobs in the
economy. Manpower requirement in manufacturing,
however, are expected to increase at a slower pace, at
0.6 percent a year, than that experienced during the
i960’s, chiefly because the recent increases in employ­
ment in industries heavily oriented toward defense are
not expected to continue a t the same pace. Employ­
ment, however, is expected to rise about 800,000 from
1969 to 1975. From the 1970 low, employment in manu­
19
The methods used in developing these estimates are facturing is projected to increase nearly 1.5 million.
available from the Bureau on request, as well as tables of the
As In the past, changes in employment in individual
final demand by producing sector for selected years and
manufacturing industries will vary widely as the sector is
projected to 1975. In addition, the 1975 inverse matrix is
more heterogeneous than the others. Variation in de­
available.
mand and productivity within the sector is as great as it
2
0 Detailed industry output and employment for each of the
is between this sector and the other major sectors.
80 sectors is available on request.




G o o d s -p r o d u c in g s e c to r s .

23

Table 14. Civilian em ploym ent and average annual rates of change, by major sector, selected years, 19 59 -70 and
projected 1975
(Thousands of jobs)

Major Sector

1959

1965

1967

1968

1969

1970

Projected
1975
Model I

Total .......................................................... 67,882
Agriculture, forestry and fisheries . . . 5,822
Mining .......................................................
769
3,717
Construction ............................................
Manufacturing .......................................... 17,061
D u ra b le ...............................................
9,400
Nondurable .......................................
7,661
Transportation, communications, and
public u tilitie s .......................................
4,219
T r a d e .......................................................... 13,947
Finance, insurance and real estate . . . 2,901
Services.......................................................
8,888
G overnm ent...............................................
8,083
Households ...............................................
2,575

Average annual rate of
change1

1959-65

1965-69

Projected
1969-75

74,568
4,671
667
3,994
18,454
10,644
7,810

78,906 80,790 83,080 83,293
4,196
4,148
3,932
3,729
641
654
649
659
4,033
3,981
4,208
4,117
19,805 20,141 20,545 19,756
11,670 11,866 12,119 11,438
8,135
8,275
8,426
8,318

91,430
3,350
620
5,100
21,295
12,495
8,800

1.6
-3 .6
-2 .5
1.2
1.3
2.1
0.3

2.7
-4 .2
-0 .5
1.3
2.7
3.3
1.9

1.6
-2 .6
-0 .9
3.3
0.6
0.5
0.7

4,250
15,352
3,367
11,118
10,091
2,604

4,470
16,160
3,569
12,194
11,398
2,484

4,702
17,614
4,021
13,817
12,599
2,281

4,935
18,940
4,450
15,950
14,550
2,240

0.1
1.6
2.5
3.8
3.7
0.2

2.2
3.0
3.7
4.8
4.9
-2 .8

1.1
1.5
2.2
2.9
3.0
-0 .6

4,523
16,658
3,719
12,765
11,845
2,317

4,633
17,274
3,896
13,412
12,204
2,322

Percent Distribution
Total ..........................................................
Agriculture, forestry and fisheries . . .
Mining .......................................................
Construction ............................................
Manufacturing ..........................................
D u r a b le ...............................................
Nondurable .......................................
Transportation, communications, and
public u tilitie s .......................................
T r a d e ..........................................................
Finance, insurance and real estate . . .
Services.......................................................
G overnm ent...............................................
Households ...............................................

100.0
8.6
1.1
5.5
25.0
13.7
11.3

100.0
6.3
0.9
5.4
24.7
14.3
10.5

100.0
5.3
0.8
5.0
25.1
14.8
10.3

100.0
5.1
0.8
5.0
24.9
14.7
10.2

100.0
4.7
0.8
5.1
24.7
14.6
10.1

100.0
4.5
0.8
4.9
23.7
13.7
10.0

100.0
3.7
0.7
5.6
23.3
13.7
9.6

6.2
20.5
4.3
13.1
11.9
3.8

5.7
20.6
4.5
14.9
13.5
3.5

5.7
20.5
4.5
15.5
14.4
3.2

5.6
20.6
4.6
15.8
14.7
2.9

5.6
20.8
4.7
16.1
14.1
2.8

5.6
21.1
4.8
16.6
15.1
2.7

5.4
20.7
4.9
17.4
15.9
2.4

NOTE: Includes wage and salaried employees and self em­
ployed and unpaid family workers. Employment is a count of
jobs rather than a count of individuals, thus, a person who

holds more than one job would be counted more than once in
this series.
1Compound interest rate between terminal years.

Construction output and employment will increase
sharply, 1969-75, as a result of the assumption about
achieving the national housing goals. The rate of change
in employment is more than twice the rate of increase in
recent years when housing was depressed. Increases in
construction activity will come not only from demand
for residential buildings, but also from private construc­
tion, particularly utilities, government construction of
sewage treatment facilities, urban redevelopment, and
rapid transit facilities.

tors. The projections for service-producing sectors,
1969-75, are for continued, if not increased, rates of
growth in output, some modest increases in productiv­
ity, and continued high rates of employment growth.
The service sector is projected to provide the largest
addition to employment between 1969 and 1975. This
growth will reflect continuing and in some cases accel­
erating demand for personal, business, recreation, and
health services resulting from a rapid rise in disposable
income and expanding economic activity. Employment
growth in this sector will result from both its relatively
low productivity as well as increasing demand for
services. Employment required per dollar of output is
higher than in manufacturing because of the high labor
content of service industries. For the same reason, the
rate of increase in productivity tends to be lower, so that

In the service-producing in­
dustries, the past trends have shown moderate to high
rates of increase in output and below average rates of
change in productivity which have led to above average
growth in employment in many service-producing secS e r v ic e -p r o d u c in g s e c to r s .




24

the gap in productivity between this sector and manufac­
turing will continue to grow.
The trade sector also will continue to grow in output
at a rate close to the growth in the total economy, and
sufficient to maintain its share of total employment,
which has been stable for many years. This sector, next
to manufacturing, is the largest of the major sectors. In
increasing at the same rate as total employment, the
sector is an important source of employment, projected
to add over 1.5 million jobs by 1975.
Finance, insurance, and real estate will continue its
slow upward climb as a proportion of total employment
as a result of increased demand. The only service-pro­
ducing sector that will lose some, ground in its share of
total employment is the transportation and utilities
sector. The loss will occur in spite of continued high
rates of growth in output. Even with the declining
proportion of employment, employment in this sector
will continue to increase faster than during the 1959-65
period.
In the nonfarm sector, a most obvious trend is the
increase in government employment. The level increased
almost 50 percent from 1965 with a consequent rise in
its share of total employment. The projected rise in the
government share of employment will occur even though
the rate of increase in government employment is
expected to be slower than in the 1959-65 or the 196569 period. The total increase in government comprises
an assumed slight increase in Federal Government
employment, and a continuing strong increase in State
and local government employment. These conclusions
follow closely from the changing structure of final
demand discussed in previous chapters. The State and
local employment estimate reflects the general growth in
demand for more and better government services, even
though the rate of growth for all levels of educational
services will be easing. The Federal employment estimate
assumes that the major Federal expenditures will be in
grants and transfers rather than in direct purchases and,
thus, will not require large expansion of Federal employ­
ment.

this increase will be absorbed by rising productivity, the
demand will be strong enough to moderate the long-term
decline in employment to a virtually stable level. Other
sectors with more rapid output and employment in­
creases are stone and clay products and glass. One
industry indirectly affected by construction demand,
particularly by the emphasis on residential construction
and the projected increase in household formations, is
the household furniture sector, which is projected to
increase at a faster rate in 1969-75.
The defense-oriented industries have a mixed future
but in no case particularly optimistic. Ordnance and
aircraft, at the peak of Vietnam expenditures in 1968,
had over 70 percent of employment attributed to
defense. They are not expected to resume high levels of
employment by 1975, even though demand by defense
for aircraft will recover somewhat. Compared with the
end of 1970, aircraft employment will rise a little by
1975 to something above the pre-Vietnam levels. But for
the ordnance industry, the assumption about defense
and space spending do not indicate increases such as
resulted in the industry output and employment growth
in the 1960’s.
Two other defense-oriented industries had about a
third of employment attributed to defense in 1968.
They are expected to recover substantially from the low
points of the end of 1970 on the basis of civilian
demand. The electronic components industry (sector 57)
supplies components to the fast growing computer
industry, and has not had the same drop in employment
as the other industries. Employment in this industry is
expected to continue to rise but at a much slower pace
than during the peak war years. The larger radio,
television, and communication industry (sector 56) has
customers in two growth areas, the telephone industry
and consumer purchases. Employment is expected to
decline from 1969 to 1975. However, though employ­
ment dropped sharply in 1970, much of it is expected to
be recovered by 1975, but not to the peak 1968 or 1969
levels.
The overall transportation industry has had a reason­
able steady growth in output, but has had a decline in
employment caused by declines in railroads employ­
ment. It is projected to show a persistent small increase
in level largely as a result of demand for trucking and air
transportation. The output projection, 1969-75, for
transportation is a return to the rate of increase which
prevailed during the 1959-65 period.
The communications industry has had years of fairly
stable employment, caused by a decline in operator
employment and increases in other types. The effect of
the decline is now substantially completed, and employ­
ment is expected to increase to keep pace with increased

Trends in selected industries' o utp ut and em ploym ent

The implications of the trends projected for some of
the industries within the major sectors, especially within
the large manufacturing group, are worthy of further
note. The projected increase in demand for construction
will carry with it increased demand for the output of
industries supplying materials to construction. For in­
stance, output of the lumber industry (sector 20) is
expected to increase at a much faster rate than it did in
the 1959-69 period. (See table 15.) Although much of




25

Table 15. Trends in output and employment in selected industries,1 selected periods, 1959-69 and projected 1969-75
(Average annual rates of change2 )
Employment 4

Output3
Sectors

Construction-related sectors:
New c on struction .......................................................
Lumber and wood products ....................................
Glass ..............................................................................
Stone and clay products.............................................
Household furniture ..................................................
Defense-related sectors:
Ordnance ................................................................... .
Communications e q u ip m e n t....................................
Electronic components ............................................
Aircraft ........................................................................
Other manufacturing sectors:
Synthetic fibers ..........................................................
Rubber and plastic p ro d u c ts ....................................
Computers ...................................................................
Optical, ophthalmic, and photographic
equipment ................................................................
Other nonmanufacturing sectors:
C o a l................................................................................
Transportation.............................................................
Communications .......................................................
Utilities ........................................................................
Medical, educational, and nonprofit
organizations.............................................................

Projected
1969-75

1959-65

1965-69

Projected
1969-75

5.5
5.0
5.3
6.2
4.7

1.2
-1 .2
1.9
0.3
1.9

1.3
-0 .3
2.0
0.6
2.1

3.3
-0 .2
2.0
1.5
2.1

17.4
9.0
12.1
11.5

-4.1
1.2
6.5
-0 .5

1.7
3.3
6.3
-2 .4

9.0
5.5
6.0
6.8

-5 .7
-0 .8
1.2
-3 .8

8.6
7.0
10.6

7.4
8.0
18.4

7.2
6.9
10.0

4.5
3.9
5.6

3.9
5.9
9.6

3.3
2.7
4.0

10.3

12.2

8.6

3.3

6.3*

3.2

2.8
4.3
7.3
5.8

0.8
4.9
9.0
7.4

2.6
4.3
6.5
6.0

-5 .3
-0 .2
0.6
0.3

-1 .0
1.6
4.4
1.6

-1 .0
0.6
2.2
1.1

5.0

4.5

6.5

4.1

5.4

4.2

1959-65

1965-69

2.7
3.0
4.1
3.4
3.2

0.8
1.5
3.8
5.5
4.0

na
12.7
12.5
0.8

G ro w th rates in output and employment for all industries
are available on request.
2 Compound interest rate between terminal years.
3 Average annual rate of increase in gross duplicated output
in real terms.

4 Average annual rate of increase in civilian employment on a
jobs concept. Employment includes wage and salary employees
and self employed and unpaid family workers.

needs for new installations and improved service. A
similar situation will affect the utilities industries; thus,
the projected increases at this time are larger than would
have been foreseen during its long period of stable
employment in the 1960’s. In both of these sectors, the
larger projected increases in employment reflect some
slowdown in the rate of increase in productivity.
Within the fast growing service sector, the most rapid
increase will be in the medical, education, and nonprofit
organizations sector. Since the level of employment in
this industry now is over 6 million, the projected rise
will mean additional employment of almost 1.5 million.
Resultant strong demand for medical care and the
addition of medicare and medicaid also have stimulated
the drug industry (29) to rapid growth.
Business services and auto repair will increase rapidly
also, but the rate of increase in employment in personal
services is expected to slow down, mostly as a. result of
declines in demand for some personal services.
The decline in employment in coal mining, which has

been sharp for some time, is expected to slow down.
Increased demand for coal from electric utilities and for
export may mean opening new mines with a consequent
slowdown in the very high increase in productivity,'
which prevailed during the period of mechanization of
the industry.
The fastest growing industry in terms of projected
rates of output and employment growth is the computer
industry (sector 51). Although future growth rates
cannot be expected to attain the height achieved since
the introduction of their use and particularly the very
high 18.4 percent a year growth, 1965-69, the rate of
growth in output and employment is expected to
continue to exceed any other sector in the economy.
Another rapidly growing area of the economy is
concerned with plastics. Both the raw material industry
(sector 28) and the manufactured product (sector 32)
show strong growth rates in both output and employ­
ment, although not as high as in the past.
The previous discussion of individual sectors has




26

highlighted those sectors employment in which is pro­
jected to increase at rapid rates. If, however, an
examination is made of the important job sources of the
early 1970’s, a total increase of 8.4 million jobs between
1969 and 1975 is projected and over 75 percent is
expected to be provided by four sectors:




State and local government ...........................
Wholesale and retail trade .............................
Medical, educational, and nonprofit
organizations.................................................
Construction.....................................................
T o t a l........................................................

27

(in millions)
2.4
1.6
1.7
.9
6.6

C h a p t e r V.

Alternative Models

In chapter I, a short description was given of the
three alternative models contained in this report. In
chapters II through IV, the emphasis was on one of these
models— basic model or model I. In this chapter, the
the
two alternative models will be discussed in detail.

factor which affects potential GNP is the projected split
between public and private employment. In the environ­
mental model, the State and local government employ­
ment is projected 100,000 higher than in the housing
goals model. The higher State and local government
employment is consistent with the larger State and local
activity in pollution control. Since total employment in
all three models is the same, private employment in the
environmental model is 100,000 lower. The effect of the
shift of these employees from the private sector to the
public sector is to lower potential 1975 GNP by .7
billion dollars. (See table 16.)
In the arms limitation model, the lower military
expenditures are assumed to be accompanied by
100,000 fewer men in the armed forces; this number is
offset by higher projected State and local government
employment. The assumed shift in employment from
the military to State and local government employment
would have no effect on potential 1975 GNP, because of
the nearly comparable average pay per person in the
military, and in State and local government. As can be
seen in table 17, the potential GNP under the three
alternative models are 936.7, 936.0, and 936.0 billion
dollars. Since in developing these projections the GNP is
rounded to the nearest 5 billion dollars, the 1975
potential GNP in all three models is assumed to be the
same—
935.0 billion dollars (1958 dollars).

Assumptions

A number of the assumptions for 1975 used in the
basic model are similar for the other two models,
including the unemployment rate, which is 3.8 percent
in all three models. The assumptions concerning no
change in tax laws and return of the economy to growth
under its full employment potential are the same in all
models. However, the alternative models are not com­
plete models, so that a complete range of assumptions
similar to model I are not available. The two alternative
models have certain assumptions that have been modi­
fied from those used in the basic model. Model II, called
the environmental model, has the following changes
from model I: The time path for achieving the housing
goals is assumed to be modified so that 1975 level of
residential construction is 10 billion dollars less than in
model I. This 10 billion dollars of resources is assumed
to be devoted to expenditures for combating air and
water pollution. Thus, in model II, the expenditures in
1975 by State and local governments, Federal Govern­
ment and business investment in plant and equipment
are higher than in model I.
The third alternative model is an arms limitation
model. It assumes a limited arms agreement between the
major powers will take place in 1972 and that 1975
defense expenditures, in real terms, will be 3 billion
dollars lower than they would have been without the
agreement. The additional resources are assumed to be
spent by State and local governments on urban problem
areas such as transit and low income housing. All other
aspects of the economy are the same in this model as in
model II. These alternative models are not meant to
provide the basis for selecting alternative paths for the
economy to move, but are meant to show the manpower
implications of the various choices available.

Although the factors influencing
potential GNP in the two alternative models are not
significantly different from those in the basic model, the
composition of GNP does, by assumption, have some
important differences. The first significant difference is
the lower rate of growth of residential structures in the
environmental model (II) and the arms limitation model
(III). (See table 17.) With the level of residential
structures projected lower in 1975 in the two alternative
models by ten billion dollars (1958 dollars), the pro­
jected growth in residential structures, 1969-75, is more
than halved from a rate of 10.0 percent a year in model I
to 5.0 percent, or about the same rate as overall GNP in
the two alternative models. In unit terms, this reduction
is from 2.7 million to 2.0 million residential units. Part
of the resources which in the basic model is devoted to
residential construction, in the environmental model is
projected to be split three ways. State and local expendi­
tures are projected 5 billion dollars higher and these
resources are assumed to be spent on activities directly
related to air and water pollution. About one-half of this
amount has been projected to be added to construction
C o m p o n e n ts o f G N P.

Gross national product and components

Many of the basic assumptions that
affect potential GNP are the same in the two alternative
models as in the basic model. Since the labor force
growth, unemployment rate, projected change in hours
and productivity are the same in all models, the only

P o te n tia l G N P.




28

Table 16. Labor force, employment, hours, productivity, and gross national product, 1969 and projected 1975 for 3
economic models
Average annual rate of change1

1975
Category

Projected 1969-75

1969
Model I

Total labor f o r c e ............................................
U n e m p lo y e d ............................................
Employed (persons) ...............................
Adjustment to jobs concept . . . .
Employment (jobs concept) ......................
Government2 ..........................................
F e d e ra l...............................................
Military .......................................
Civilian .......................................
State and local .................................
P r iv a te .......................................................
Agriculture .......................................
N o nag riculture.................................
Average annual man-hours paid for
p r iv a te .......................................................
Agriculture .......................................
N onag riculture.................................
Total man-hours (millions)
p r iv a te .......................................................
Agriculture .......................................
N o nag riculture.................................
GNP per man-hour (1958 dollars)
p r iv a te .......................................................
Agriculture .......................................
N o nag riculture.................................
Total GNP (1958 dollars) ............................
Government ............................................
F e d e ra l...............................................
Military .......................................
Civilian .......................................
State and local .................................
P r iv a te .......................................................
Agriculture .......................................
Nonagriculture
...............................

Model II

Model III

Model I

Model II

Model III

84,240
2,832
81,408
5,598
87,006
14,727
5,529
3,463
2,066
9,198
72,279
3,587
68,692

92,792
3,431
89,361
5,000
94,361
16,035
4,535
2,500
2,035
11,500
78,326
3,000
73,326

92,792
3,431
89,361
5,000
94,361
16,135
4,535
2,500
2,035
11,600
78,226
3,000
75,226

92,792
3,431
89,361
5,000
94,361
16,135
4,435
2,400
2,035
11,700
78,226
3,000
75,226

1.6
3.2
1.6
-1 .9
1.4
1.4
-3 .3
-5 .3
-0 .3
3.8
1.3
-2 .9
1.5

1.6
3.2
1.6
-1 .9
1.4
1.5
-3 .3
-5 .3
-0 .3
3.9
1.3
-2 .9
1.5

1.6
3.2
1.6
-1 .9
1.4
1.5
-3 .6
-5 .9
-0 .3
4.1
1.3
-2 .9
1.5

1,991
2,304
1,975

1,976
2,274
1,964

1,976
2,274
1,964

1,976
2,274
1,964

-0.1
-0 .2
-0.1

-0.1
-0 .2
-0.1

-0.1
-0 .2
-0.1

143,912
8,263
135,649

154,762
6,822
147,940

154,566
6,822
147,744

154,566
6,822
147,744

1.2
-3.1
1.5

1.2
-3.1
1.4

1.2
-3.1
1.4

4.61
2.93
4.72
724.7
60.7
25.9
13.7
12.2
34.7
664.0
24.2
639.8

5.63
3.91
5.71
936.7
65.3
21.9
9.9
12.0
43.4
871.4
26.7
844.7

5.63
3.91
5.71
936.0
65.7
21.9
9.9
12.0
43.8
870.3
26.7
843.6

5.63
3.91
5.71
936.0
65.7
21.5
9.5
12.0
44.2
870.3
26.7
843.6

3.4
4.9
3.2
4.4
1.2
-2 .7
-5 .3
-0 .3
3.8
4.6
1.7
4.7

3.4
4.9
3.2
4.4
1.3
-2 .7
-5 .3
-0 .3
4.0
4.6
1.7
4.7

3.4
4.9
3.2
4.4
1.3
-3.1
-5 .9
-0 .3
4.1
4.6
1.7
4.7

1 Compound interest rates between terminal years.
2The employment used here is from the U.S. Department of
Commerce, Office of Business Economics. Elsewhere throughout

the report the government employment is from the Bureau
of Labor Statistics.

of sewers and sewage treatment facilities. Other portions
are projected for expenditures on equipment which
might be added to publicly owned power plants and
incinerators in order to lower air pollution. One billion
dollars of the additional resources is projected to be
added to Federal Government purchases to be devoted
to the same types of activities as the State and local
government in areas of direct Federal responsibility.
Nonresidential investment is projected higher also in
the environmental model by 4 billion dollars (1958
dollars). This additional 4 billion dollars in nonresiden­
tial investment in 1975 raises the growth rate, 1969-75,
from 5.0 percent a year in the housing goals model to
5.7 percent a year in the environmental model. This
additional expenditure on nonresidential investment,

both plant and equipment, is assumed to be spent on
equipment or facilities necessary to lower air and water
pollution. All other elements of demand in the environ­
mental model are the same as in the housing goals
model.
In the arms limitation model, the lower residential
construction and higher business investment and State
and local government expenditures found in the environ­
mental model are used as a starting point. The projected
lower Federal defense expenditures of 3 billion dollars
(1958 dollars) in the arms limitation model changes the
rate of decline in total Federal expenditures from 1.9
percent in model I to 2.3 percent a year decline in model
III. State and local government expenditures are pro­
jected at 3 billion dollars higher in model III, and these




29

Table 17. Components of gross national product and average annual rates of change, selected years 1959-70 and
projected 1975
(Billions of 1958 dollars)
Average annual rate of change1
Projected 1975
Projected 1969-75
Components

1959

1965

Gross national p ro d u c t...................... 475.9 617.8
Personal consumption
expenditures............................... 307.3 397.7
Gross private domestic
in v e s tm e n t.................................
73.6
99.2
44.1
66.3
Nonresidential ......................
24.7
Residential...............................
23.8
Change in in v e n to ry ..............
9.0
4.8
.3
6.2
Net e x p o rts ....................................
37.4
E x p o rts ....................................
23.8
23.5
31.2
Im p o rts ....................................
94.7 114.7
Government .................................
Federal ....................................
52.5
57.9
State and local ......................
42.2
56.8

Model
I

Model
II

Model
III

1959-65

1965-69

720.0

935.0

935.0

935.0

4.4

4.1

4.4

4.4

4.4

469.3 475.9

614.0

614.0

614.0

4.4

4.2

4.6

4.6

4.6

102.2
78.6
21.3
2.3
2.4
52.2
49.8
139.4
65.4
74.0

156.0
108.0
41.0
7.0
4.0
67.3
63.3
161.0
66.0
95.0

150.0
112.0
31.0
7.0
4.0
67.3
63.3
167.0
67.0
100.0

150.0
112.0
31.0
7.0
4.0
67.3
63.3
167.0
64.0
103.0

5.1
7.0
-0 .6
11.0

2.6
4.8
-0 .8
8.2

5.1
5.0
10.0
1.5

5.4
5.7
5.0
1.5

5.4
5.7
5.0
1.5

—

—

—

—

—

6.7
11.5
6.1
6.3
6.1

5.6
4.6
1.7
-1 .9
4.8

5.6
4.6
2.3
-1 .6
5.7

5.6
4.6
2.3
-2 .3
6.2

1969

724.7

109.6
80.1
23.1
6.4
.1
48.5
48.3
145.6
73.8
71.9

1970

7.8
4.8
3.2
1.7
5.1

Model
I

Model
II

Model
III

Percent Distribution
Gross national p ro d u c t......................
Personal consumption
expenditures...............................
Gross private domestic
in v e s tm e n t.................................
Nonresidential ......................
Residential...............................
Change in in v e n to ry ..............
Net e x p o rts ....................................
E x p o rts ....................................
Im p o rts ....................................
Government .................................
Federal ....................................
State and local ......................

100.0

100.0

100.0

100.0

100.0

100.0

100.0

64.6

64.4

64.8

66.1

65.7

65.7

65.7

15.5
9.3
5.2
1.0

16.1
10.7
3.9
1.5
1.0
6.1
5.1
18.6
9.4
9.2

15.1
11.1
3.2
0.9

14.2
10.9
3.0
0.3
0.3
7.3
6.9
19.4
9.1
10.3

16.7
11.6
4.4
0.7
0.4
7.2
6.8
17.2
7.1
10.2

16.0
12.0
3.3
0.7
0.4
7.2
6.8
17.9
7.2
10.7

16.0
12.0
3.3
0.7
0.4
7.2
6.8
17.9
6.8
11.0

0.0
5.0
4.9
19.9
11.0
8.9

0.0
6.7
6.7
20.1
10.2
9.9

SOURCE: Historical data are from the U.S. Department of
Commerce, Office of Business Economics. Projections are by the
Bureau of Labor Statistics.

1 Compound interest rate between terminal years.

The environmental model as­
sumes $4.0 billion (1958 dollars) will be spent by
business for pollution control in 1975. Reports prepared
by the Federal Water Quality Administration2 1 and the

funds are assumed to be devoted to urban transit and
urban development. All other demand categories in
model III are the same as in model II.
In developing these models, value judgments were not
involved in selecting which of the alternative models
might be preferable. The alternative models only serve to
illustrate what the effect is on output and employment,
if the economy moves one way or another.

E n v ir o n m e n ta l m o d e l.

21 U.S. Department of Interior, Federal Water Pollution
Control Administration, The Cost o f Clean Water, Vol. II,
Washington, D.C., U.S. Government Printing Office, January
1968; and U.S. Department of Interior, Federal Water Pollution
Control Administration, The Cost o f Clean Water and its
Economic Impact, Vol. I, Washington, D.C., U.S. Government
Printing Office, Jan. 1969; and U.S. Department o f Interior,
Federal Water Pollution Quality Administration, The Economics
o f Clean Water, Vol. I, Washington, D.C., U.S. Government
Printing Office, March 1970; and “Figures on Water and
Wastewater Equipment Shipments,” by K. L. Kollar o f the U.S.
Department of Commerce, Business Defense Services Adminis­
tration, printed in June 1968 Water and Waste Engineering.

Industry structure o f demand

The use of an input-output model for developing em­
ployment and output projections requires that explicit
estimates be made of the industry structure of demand. In
chapter III, a discussion is presented of the detailed struc­
ture of demand for the basic model. In order to proceed
with these projections for the alternative models, detailed
input-output bills of goods are required.




30

National Air Pollution Control Administration2 2 pro­
videV useful information for the distribution of this $4.0
billion to producing industries.
These studies do not cover all industries or all
possible pollutants, but the coverage probably is indica­
tive of those industries which might be most affected.
The pollutants covered are particulates, sulphur oxides,
hydrocarbons, carbon monoxide, settleable and sus­
pended solids, and oxygen-demanding dissolved organics.
In addition, it is assumed that expenditures will be made
in an attempt to return industrial cooling water to the
source temperature before discharge.
As mentioned, all industries and possible pollutants
were not covered by these projections. No doubt,
expenditures will be made in 1975 for the control of
other pollutants and sources such as acid mine drainage,
animal feedlots, wastes from watercraft, and solid waste
disposal, but these projections do not cover these
expenditures for 1975. In this analysis, direct costs to
the consumer, for example, the cost of installing
antipollution devices on autos, are not considered;
neither are the effects of pollution control equipment on
the price structure.
Table 18 presents the estimated effect of pollution

control on producer durable equipment producing in­
dustries in millions of 1958 dollars, and in terms of a
percent distribution of the total. General and industrial
machinery (industry 49) is the largest producer of air
pollution control equipment in the present stage of
technology. Fabricated metal products and general
industrial machinery (sectors 40 and 49) dominate in the
production of water pollution control equipment.
It should be noted that many of the controlling devices
require installation which adds substantially to—
and
in some cases exceeds—
their basic cost. Therefore, the
largest single effect of pollution controlling efforts is
projected to be in the construction industry. Significant
effects are projected to be in the general industrial
machinery industry—
SIC 356—
where pumps, compres­
sors, blowers and such equipment are made; the services
industries machines—
SIC 358—
where sewage purification
equipment and filters are made; the instrumentation
industry—
SIC 382—
where mechanical measuring and
controlling instruments are made.
In the environmental model, an additional 5 billion
dollars (1958 dollars) is assumed to be spent by State
and local government on water and air pollution. In
table 19, the effect of the additional 5 billion dollars of
State and local expenditures is shown by activity.
Of the 5 billion dollars, 2.5 billion is assumed to be
2
2 Research Triangle Institute, Comprehensive Economic
spent by State and local enterprises for sewer lines and
Cost Study o f Air Pollution Control Costs for Selected Industries
sewage treatment plants. Input data from a study of
and Regions, Research Triangle Park, North Carolina, Feb. 1970;
labor and material requirements2 3 is used to provide the
U.S. Department of Health, Education and Welfare, National Air
Pollution Control Administration, Control Techniques for Par­
industry breakdown. The remaining 1.2 billion dollars of
ticulate Air Pollutants, Washington, D.C., U.S. Government
expenditures in the enterprises category in 1975 is
Printing Office, Jan. 1969; and U.S. Department o f Health,
Education and Welfare, Second Report to the Congress of the
United States, The Cost o f Clean Air, Senate Document 91-65,
Washington, D.C., U.S. Government Printing Office, March
1970.

2
3 U.S. Department of Labor, Bureau of Labor Statistics,
Labor and Material Requirements for Sewer Works Construction,
BLS Bulletin 1490.

Table 18. Value o f air and water pollution control equipm ent by producing industries, 19 75
Percent distribution

Millions of 1958 dollars
Industry number and title
Air

Water

Total

Air

Water

Total

T O T A L ...........................................................................

1,344.2

2,655.8

4,000.0

100.0

100.0

100.0

11 New construction..................................................
36 Stone and clay products ....................................
40 Heating, plumbing, and fabricated
structural metal p ro d u c ts .................................
48 Special industry machinery and
e qu ipm ent.............................................................
49 General industrial machinery and
equ ipm ent.............................................................
52 Service industry machines .................................
62 Professional, scientific, and controlling
instruments and supplies .................................
65 Transportation and w arehousing......................
69 Wholesale and retail trade .................................

93.2

—

6.9

—

10.4

93.2
10.4

956.7

1,100.8

15.7

15.7

749.6
385.1

1,715.5
385.1

253.1
46.0
239.2

253.1
94.4
331.8




144.1

965.9
—

—

48.4
92.6

31

.4

10.7

71.9

—

3.6
6.9

2.3
.3

36.0

27.5

.6

—

.4

28.2
14.5

42.9
9.6

9.5
1.7
9.0

6.3
2.4
8.3

—

Table 19. 1975 State and local government expenditures
by activity, basic and environmental model

assumptions have had to be made. The assumption is
that the pact would lower defense requirements by 5
billion dollars in current prices and 3 billion dollars in
1958 dollars. The systems which would be affected
would be strategic missiles and bombers. The armed
forces also would be lowered by 100,000, thus reducing
constant dollar defense expenditures by 4 billion dollars.
The remaining 2.6 billion dollar reduction would be
distributed among the major defense sectors as follows:
ordnance (sector 13)— 1.0 billion, aircraft (sector 60)—
$
.6
billion, communication equipment (sector 56)— bil­
.4
lion, and .2 billion dollars for other transportation
equipment. The ordnance reduction would follow di­
rectly from the reduced growth of missile development,
the aircraft drop would result partially from lower
aircraft development, and partially from lower missile
booster purchases. The electronic equipment would be
lower because of guidance systems associated with
missiles, and the transportation equipment reduction
would follow from lower submarine requirements.
The resources in the arms limitation model freed by
the lower defense purchases are assumed to be spent by
State and local government on urban development and
transit facilities. In terms of the distribution of State and
local government expenditures by activity, these ex­
penditures fall into the enterprises category. Most of
these expenditures ultimately would go to construc­
tion, although some of these expenditures would be
involved in urban transit equipment.

(Billions o f 19 58 dollars)

A ctivity

Basic model

Environm ental
model

Total ..........................
Education . . . .
Enterprises . . . .
Sanitation . . . .
A ll o t h e r ............

19 5 .0

100.0

3 3 .8
7. 6
0. 9
52 .7

3 3 .8
11.3

2.2
52 .7

1 For a more detailed breakdown of 1 9 75 State and local
government expenditures, see chapter III.

distributed among the industries noted, which produce
equipment for water pollution control. The higher 1975
expenditures by State and local government for sanita­
tion (largely solid waste collection and disposal) is
projected to be directed toward those industries noted
which produce equipment used for air pollution abate­
ment.
In describing what was done to develop an input-out­
put bill of goods for environmental expenditures, it is
equally important to stress, in addition to what was
done what was not done. These estimates were de­
veloped using today’s technology. Therefore, since some
of the technology to control pollution is not known, a
new development may come from sectors other than
those shown here. Further, the Bureau prepared no
estimate of the amount of the various types of pollu­
tants generated by industry and region—
information
vitally important to actual pollution abatement. The
attempt was to estimate, with today’s knowledge, the
industries most likely to be affected in output and
employment by additional monies spent on air and
water pollution control.

Output and employment

The demand distributions prepared for the environ­
mental model, and the arms limitation model are used in
conjunction with the projected input-output table to
calculate growth rates in output by sector, and from
these employment estimates by sector are calculated.
However, in as much as large elements of demand,
particularly personal consumption expenditures, are
identical in all models, the output and employment of
most industries are identical or nearly identical in all
three models. Of course, some industries are affected by
the alternative models and the discussion which follows
is centered on these industries.

Arms limitation. In the arms limitation model, 1975
defense purchases are projected at 3 billion dollars (1958
dollars) lower than in the other two models. The
assumption in this model of a limited arms agreement
does not lower defense requirements drastically in the
short run. Such an agreement would limit the future
expansion and development of new weapon systems, so
that its effect on defense expenditures would be
marginal immediately after such an agreement. Of
course, over a longer period, such as a decade, the
cumulative effect could be quite significant.
In terms of specific systems, the arms limitation
model assumes a limited arms pact taking place in 1972
along the lines being discussed at the Strategic Arms
Limitation Talks (SALT). The details of these discus­
sions are highly classified and certain highly arbitrary




Environmental model. In table 20, the sectors signifi­
cantly affected in output and employment are shown
and compared with the basic model. These sectors are
grouped into two broad groups: construction related and
pollution equipment related. Those construction related
sectors’ output growth is slower in this model because of
the lower residential construction. Of course, since
construction and its supplying industries are treated in
32

Table 20. Average annual rates of change, output and employment, selected sectors, projected 1969-75
Average annual rate of change 1 9 6 9 -7 5 1
O u tp u t2

Sector

E m p lo y m en t3

Housing goals
model

1Com pound interest rate between term inal
2Gross duplicated o u tp u t in real terms.

Basic

5.5
5.0

Construction related sectors:
N ew and m aintenance c o n s tru c tio n ...............
Lumber and w ood p r o d u c ts .............................
Stone and clay products ...................................
Electric lighting and wiring equipm ent . . . .
Pollution control-related sectors:
Prim ary iron and s t e e l .........................................
General industrial machinery ...........................
Service industry m achinery .............................
Scientific and controlling instruments . . . .

Environm ental
model

4 .5
4 .3
5.9
5.9

3 .3
- 0 .2
1.5
3.0

2 .3
-0 .9

1.7
8.7
8 .3
3. 7

- 1 .0
1.7
2.7

- 0 .8

6.2
6 .3
1.5
4 .3
7.3

2.6

years.

Environm ental
model

1.2
2.7

6.0
3.8
1.7

0.6

3 E m p loym en t is a count of jobs rather than persons. It ineludes wage and salary employees and self em ployed and unpaid
fa m ily workers.

The other group of industries is related to pollution
control equipment. The most significant increases are
found in the general industrial machinery industry,
which manufactures products such as filters, electro­
static precipitators, air purification equipment, cyclonic
wet scrubbers, dust collection equipment, sludge digestors, fume collecting equipment, afterburners, ventila­
tors, settling tanks, and filter elements; service industry
machines where sewage purification equipment is manu­
factured; and the scientific and controlling instrument
sector, where measuring and controlling instruments are
manufactured. Most other sectors are affected only
slightly, if at all.

these projections as one sector, the cutback in residential
construction is offset partially by the pollution-related
construction increase. In addition to construction, three
closely related sectors are projected to have a slower
output and employment growth in the environmental
model than the basic model. (See table 21.) Other
construction-related sectors are affected to a smaller
degree also, such as glass, nonferrous metals, fabricated
metal products, paint, business services, architectural and
engineering services, and forestry products. One sector,
plumbing and structural metal, shows no change, be­
cause its construction related losses are offset by
pollution control equipment-related gains.

Table 21. Average annual rates of change,1 output and employment, selected sectors, projected 1969-75
Average annual rate o f change, 19 69-7 5
E m p loym en t3

O u tp u t2
Sector
Housing
goals
model
C onstruction-related:
N ew c o n s tru c tio n ................................
Lum ber and wood p r o d u c t s ............
Stone and clay p ro d u c ts .....................
Electric lighting and wiring
equipm ent .........................................
Defense-related:
Ordnance ...............................................
Machine s h o p s ......................................
Com m unication equipm ent ............
A ircra ft ..................................................

E nviron­
mental
model

Arms
lim itation
model

2.3
- 0 .9

6.1

3.3
- 0 .2
1.5

1.2

2.5
- 0 .7
1.4

5.9

6.2

3.0

2.7

3.0

-4 .1
2.3

- 6 .4

-5 .6

- 5 .6

1.8

1.8

1.2

2.0
0.8

- 0 .5

-1 .3

- 0 .6
- 3 .6

-0 .6
- 3 .6

- 7 .8
1.4
-1 .1
- 4 .4

Environ­
mental
model

Arms
lim itation
model

4 .8
4 .5

6.2

4.5
4 .3
5.9

6 .3
-4 .1

5.5
5 .0

2.2
1.2
-0 .5

1Com pound interest rate between term inal years.
2 Gross duplicated o u tp u t in real terms.




Basic
model

3 Em ploym ent is a count o f jobs rather than persons. The
count includes wage and salary workers and self em ployed and
unpaid fam ily workers.

33

Arms limitation model. In the arms limitation model,
only three sectors are directly affected to any significant
degree by the lower defense requirements in this
model—
ordnance, communication equipment, and air­
craft. State and local construction is increased in model
III over the projections under model II assumptions, but
total construction activity is still lower in 1975 than
under the assumption found in model I.
The indirect construction-related sectors are similar




to the ones identified in the discussion on the environ­
mental model. Most of these sectors are somewhat
higher in this model than in model II, but still lower
than model I. In the defense-related sectors, one indirect
sector, machine shop products, is noted. All other
sectors are affected only marginally, if at all. The
employment levels in the four defense-related sectors are
75,000 lower in the arms limitation model than in the
other two models.

34
☆ U. s . GOVERNMENT PRINTING OFFICE : 1972 O - 484-792 (97)

HANDBOOK
OF LABOR
STATISTICS

Announcing
The 1971
edition of the

A comprehensive
reference volum e of
historical and
current data.

The H a n d b o o k contains:
consumer price indexes
beginning in 1800 thru 1970;
average hours and earnings of
production workers from 1909
thru 1970; work stoppages in the
U.S. 1881 thru 1969; and many
other historical series essential
for anyone interested in
economic trends.
The H a n d b o o k o f L a b o r S tatis tic s ,
price $3.25 . . . Prepared by
the Bureau of Labor Statistics,
U.S. Department of Labor.
The Handbook may be purchased
from the Superintendent of Documents,
U.S. Government Printing Office,
Washington, D.C. 20402, or from
any of these regional offices of the
Bureau of Labor Statistics, U.S.
Department of Labor. (Make check
or money order payable to the
Superintendent of Documents.)
1603-A Federal Bldg.
Boston, Mass. 02 2 0 3

1317 Filbert St.
Philadelphia, Pa. 19107

30 0 South Wacker Drive
Chicago, III. 6 06 06

1100 Com m erce Street,
Room 6B 7
Dallas, Tex. 75202

341 Ninth Ave.
Rm. 1025
New York, N.Y. 10001

1371 Peachtree St.. NE
Atlanta, Ga. 30 3 0 9

911 Walnut St.
Kansas City, Mo. 64 1 0 6

4 5 0 Golden G ate Ave.
San Francisco, Calif. 9 41 02

GP 0

9 2 4-911

O rder Form
Enclosed find $ --------------------(check, money order, or Superintendent of Documents
coupons). Please send m e ---------------copies of The Handbook of Labor Statistics, 1971,
BLS Bulletin 1705, at $3.25 a copy.
N am e___________________________________
Street address----------------------------------------------

S/N 2 901-0641
Please charge this order
to my D eposit A ccount
N o_______ ________________

FOR USE OF SUPT. DOCS.

-----Enclosed----------------------------To be mailed
— la te r---------------------------------------Subscription-----------------------Refund-------------------------------

City and S ta te --------------------------------ZIP Code
Coupon refund-------------------FOR PRO M PT S H IP M E N T , PLEASE P R IN T OR TYPE A D D R E S S O N LABEL BELOW IN C LU D IN G YOU R ZIP CO DE

U.S. GOVERNMENT PRINTING OFFICE
PUBLIC DOCUMENTS DEPARTMENT
WASHINGTON, D.C. 20402

OFFICIAL BUSINESS

Postage------------------------------

Name
Street address--------------------------------------City and S ta te --------------------------ZIP Code

RETURN AFTER 5 DAYS




POSTAGE AND FEES PAID
U.S. GOVERNMENT PRINTING OFFICE




B U R E A U O F L A B O R S T A T IS T IC S
R E G IO N A L O F F IC E S

Region I
16 03 JF K Federal Building
Governm ent Center
Boston, Mass. 0 2 2 0 3
Phone: 2 2 3 -6 7 6 2 (Area Code 6 1 7 )

Region V
8th Floor, 3 0 0 South Wacker Drive
Chicago, III. 6 0 6 0 6
Phone: 3 5 3 -1 8 8 0 (Area Code 3 1 2 )

Region II
15 15 Broadway
New Y o rk , N .Y . 10 036
Phone: 9 7 1 -5 4 0 5 (Area Code 2 1 2 )

Region V I
11 00 Commerce St., Rm. 6B 7
Dallas, Tex. 7 5 2 0 2
Phone: 7 4 9 -3 5 1 6 (Area Code 21 4)

Region III
4 0 6 Penn Square Building
1317 Filbert St.
Philadelphia, Pa. 19107
Phone: 5 9 7 -7 7 9 6 (Area Code 2 1 5 )

Region V II and V I I I
Federal Office Building
911 W alnut S t., 10th Floor
Kansas C ity, Mo. 6 4 1 0 6
Phone: 374-2481 (Area Code 8 1 6 )

Region IV
Suite 5 4 0
1371 Peachtree St. N E .
A tlanta, Ga. 3 0 3 0 9
Phone: 5 2 6 -5 4 1 8 (Area Code 4 0 4 )

Region IX and X
4 5 0 Golden Gate Ave.
Box 3 6 017
San Francisco, Calif. 9 4 1 0 2
Phone: 5 5 6 -4 6 7 8 (Area Code 4 1 5 )




Regions V II and V I I I will be serviced by Kansas C ity.
Regions IX and X will be serviced by San Francisco.

U.S. DEPARTM ENT OF LABOR

T H IR D C LA SS M A IL

B U R E A U O F L A B O R S T A T IS T IC S
W A S H IN G T O N , D .C . 2 0 2 1 2
P O S TA G E A N D FEES P A ID
O F F IC IA L B U S IN E S S
P E N A L T Y FO R P R IV A T E U SE, $ 3 0 0




U.S. D E P A R T M E N T O F LA B O R

U.S.MAIL