Projections of The Post-Vietnam Economy, 1975

Bulletin 1733

U.S. DEPARTMENT 

OF LABOR

Bureau of 

Labor Statistics

JUN 2 1972 

DOCUMENT COLLECTION

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The Post-Vietnam

Economy, 1975

Bulletin 1733

U.S. D EPARTM ENT

OF LABOR

J. D. Hodgson, Secretary

BUREAU OF LABOR STATISTICS

Geoffrey H. Moore, Commissioner

1972

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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 re sid e n t, F eb 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 rn m e n t f o r

F iscal Y ear 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 governments; nondefense 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 ttern s o f U.S. E c o n o m ic G ro 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

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Contents

Chapters: Page

1. Summary and implications.................................................................. 1

2. Employment implications of changing government expenditures.................. 9

3. Potential GNP, income and dem and................................................................... 16

4. Changes in employment, output ........................................................................ 23

5. Alternative m o d els............................................................................................... 28

Tables:

1. Average annual rate of change for selected economic factors, selected

periods, 1959-75 ............................................................................................... 4

2. Average annual rates of change of gross national product by major

component, selected periods, 1959-75 ........................................................... 5

3. Total civilian employment by major sectors, selected years, 1959-75 .......... 5

4. Components of gross national product and average annual rates of change,

1969-75 .............................................................................................................. 6

5. Federal Government purchases of goods and services and average annual

rates of change, selected years, 1959-75 ......................................................... 9

6. Employment effects of defense purchases......................................................... 10

7. Defense employment requirements for selected sectors, selected years,

1969-75 ............................................................................................................. 11

8. Federal and State and local expenditures, selected years, 1965-75 ............... 13

9. Employment generated per billion dollars of State and local government

purchases by selected final demands, 1975 ................................................... 14

10. Labor force, employment, hours, productivity, and gross national product. . 16

11. Derivation of personal income and average annual rates of change, selected

years, 1959-69 and projected 1975, model I ................................................. 19

12. Gross national product and average annual rates of change, selected years,

1959-70 and projected 1975 ........................................................................... 20

13. Government budgets (NIA concept) and average annual rates of change,

selected years, 1959-70, and projected 1975 ................................................. 22

14. Civilian employment and average annual rates of change, by major sector,

selected years, 1959-70 and projected 1975 ................................................. 24

15. Trends in output and employment selected industries, selected periods,

1959-69 and projected 1969-75 ..................................................................... 26

16. Labor force, employment, hours, productivity, and gross product, 1969 and

projected 1975, for 3 economic m o d els......................................................... 29

17. Components of gross national product and average annual rates of changes,

selected years 1959-70 and projected 1975 ................................................... 30

18. Value of air and water pollution control equipment by producing industries,

1975 .................................................................................................................... 31

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

environmental model .................................... 32

20. Average annual rates of change, output and employment, selected sectors,

projected 1969-75 ............................................................................................. 33

21. Average annual rates of change, output and employment, selected sectors,

projected 1969-75 ............................................................................................. 33

IV

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C h a p te r I. Summary and Implications

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 industry-employment adjustments that might be needed if the 

1975 peace-time full employment economy is to be 

achieved. Because the effect of changing defense requirements 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 construction in 1975 consistent with meeting national housing 

goals. Model II is an environmental model with higher 

expenditures than model I for nonresidential construction, producer durable equipment, and State and local 

government spending all related to environmental problems. 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 variables, 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

the differential effects on employment, direct and 

indirect, of selected nondefense purchases by government and the private sector.

Assumptions

The results of the study are dependent on the 

assumptions underlying the projections. Obviously, different 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 unemployment 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 of comparable length to the projected period where the

economy was operating or moving toward operating at full

utilization of 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 growth

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

Projected

Category 1959 1965 1969 1970 1975

model I

Unemployment rate (p ercen t)........................................... 5.5 4.5 3.5 4.9 3.8

Armed forces (thousands)...................................................

Federal purchases of goods and services:

2,552 2,723 3,506 3,188 2,500

Billions of current dollars ........................................... 53.6 66.9 99.2 97.2 114.1

Billions of 1958 d ollars................................................ 52.5 57.9 73.8 65.4 66.0

Grants-in-aid (billions of current d o lla rs).......................

Federal transfer payments to persons (billions of

6.8 11.1 20.3 24.4 39.8

current dollars) .................................................................. 20.1 30.3 50.4 61.2 100.0

1

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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 now

constituted, or in the form of 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 projections, 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 

desire to solve som e o f these problems. M odel II is called

the environmental model and contains higher demand 

for nonresidential construction, producer durable equipExhibit B. Models 1,11, and III, compared with data for selected years

1975 Projections

Item 1965 1969 1970 Model Model Model

I II III

Armed forces (millions) ................................................... 2.7 3.5 3.2 2.5 2.5 2.4

Unemployment rate (p e r c e n t)........................................ 4.5 3.5 4.9 3.8 3.8 3.8

Housing starts (millions)1 ................................................

National defense expenditures (billions of

1.5 1.5 1.5 2.7 2.0 2.0

1958 d o lla rs)....................................................................

State and local purchases (billions of

43.4 58.9 51.9 47.0 47.0 44.0

1958 d o lla rs).................................................................... 56.8 71.9 74.0 95.0 100.0 103.0

Nonresidential construction (billions of

1958 d o lla rs)....................................................................

Producer durable equipment (billions of

22.3 24.5 24.2 30.0 30.1 30.1

1958 d o lla rs).................................................................... 44.0 55.7 54.4 78.0 81.9 81.9

1 Public and private starts, but excludes mobile homes.

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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 accumulate 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 employment effects of alternative public or private policies. 

Individual decisions affecting the economy—for example, 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 cumulative 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 undertaken 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

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 projections of government expenditures based on actual 1971 

expenditures or later budget proposals would be different 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 continuation 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 concerned 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. Participation 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

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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 alternative, 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 manhour 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.

Summary of potential GNP and its composition

P o te n tia l G N P. The potential growth rate of the economy, 1969-75, is projected at 4.4 percent a year, it

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 Government 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. Productivity 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 employees as a component.

Table 1. Average annual rate of change for selected economic factors, selected periods, 1959-19751

Economic factors 1959-1965 1965-1969 1969-1975

Total GNP (1958 dollars). . 4.4 4.1 4.4

Total employment (jobs

concept) ............................ 1.6 2.9 1.4

Private G N P ......................... 4.6 4.1 4.6

Total man-hours........... 1.1 1.7 1.2

Output per man-hour 3.5 2.4 3.3

Public GNP2 ......................... 3.0 4.6 1.2

1 Compound interest rates between terminal years.

2 See footnote 3 above.

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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 1958 dollars)

Major components 1959-65 1965-69

Projected

1969-75

Model I

GNP ..................................................... 4.4 4.1 4.4

Personal consumption

expenditures .......................... 4.4 4.2 4.6

D urables................................ 7.3 6.2 4.0

N o n d u rab les........................ 3.3 3.0 3.5

Services ................................ 4.5 4.5 5.7

Gross private investment . . . . 5.1 3.3 5.8

Nonresidential fixed

in vestm e n t........................ 7.0 4.8 5.1

Residential structures . . . - 0.6 - 0.8 10.0

G o vern m en t................................ 3.2 6.5 1.4

Federal Government .... 1.7 6.3 -1 .9

State and local

government . .................. 5.1 6.1 4.8

E x p o rts ......................................... 7.8 6.7 5.6

Im p o rts ......................................... 4.8 11.5 4.6

1 Compound interest rate between terminal years.

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.

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 increasing 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 development which would parallel the recent expansion in 

this sector. State and local government purchases imply 

a large increase in employment within these governments. 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,

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

Projected Average annual rate of change2

Economic sector 1969 1970

1975

1969-75

Model I Model I 1959-65 1965-69

T O T A L ......................................................................... 83,080 83,293 91,430 1.6 2.7 1.6

Agriculture, forestry, and fisheries ................................ 3,932 3,729 3,350 -3 .6 -4 .2 - 2.6

M in in g ........................................................................................ 654 659 620 -2 .3 -0 .5 -0 .9

Construction ......................................................................... 4,208 4,117 5,100 1.2 1.3 3.3

Manufacturing ...................................................................... 20,545 19,756 21,295 1.3 2.7 0.6

Durable ............................................................................ 12,119 11,438 12,495 1.7 3.3 0.5

N o n d u rab le...................................................................... 8,426 8,318 8,800 0.8 1.9 0.7

Transportation, communications, and public

u tilitie s .................................................................................. 4,633 4,702 4,935 0.1 2.2 1.1

T rade ........................................................................................ 17,274 17,614 18,940 1.6 3.0 1.5

Finance, insurance, and real estate ................................ 3,896 4,021 4,450 2.5 3.7 2.2

S ervices..................................................................................... 13,412 13,817 15,950 3.8 4.8 2.9

Private households................................................................ 2,322 2,281 2,240 0.2 - 2.8 - 0.6

G o vern m en t............................................................................ 12,204 12,597 14,550 3.8 4.9 3.0

F e d e ra l............................................................................... 2,758 2,705 2,750 1.0 3.8 - 0.1

State and lo c a l................................................................ 9,446 9,892 11,800 4.7 5.2 3.8

1 Employment is a count of jobs rather than persons. It is

higher than an employment count based on persons, because

many individuals hold more than one job. Em ploym ent includes

wage and salary workers, self-employed persons, and unpaid

family workers.

2 Compound interest rate between terminal years.

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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 accommodated by increased productivity. The growth in employment which took place in 1965-69 was largely attributable to increasing defense activities during this period. 

Growing private and government activities do not 

require as much manufacturing output as defense purchases, 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.

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

that GNP was changed to include the different assumptions about residential construction and defense expenditures. (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 government and construction employment.

Comparative employment requirements. The composition 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 indirect, per billion dollars of final demand, employment 

generated by different types of demand can be comTable 4. Components of gross national product and average annual rates of change, 1969-75

(Billions of 1958 dollars)

GNP components 1969 1970

Projected 1975 Average annual rate

of change1

Model

I

Model

II

Model

III

Projected 1969-75

Model

I

Model

II

Model

III

Gross national p ro d u c t.................................................. 724.7 720.0 935.0 935.0 935.0 4.4 4.4 4.4

Personal consumption ex pen ditures.................. 469.3 475.9 614.0 614.0 614.0 4.6 4.6 4.6

Gross private domestic investm ent..................... 109.6 102.2 156.0 150.0 150.0 6.1 5.4 5.4

Nonresidential .................................................. 80.1 78.6 108.0 112.0 112.0 5.1 5.7 5.7

Residential ........................................................ 23.1 21.3 41.0 31.0 31.0 10.0 5.0 5.0

Change in inventory ...................................... 6.4 2.3 7.0 7.0 7.0 - 0.8 - 0.8 - 0.8

Net e x p o rts ................................................................. 0.1 2.4 4.0 4.0 4.0 — — —

E x p o rts ................................................................. 48.5 52.2 67.3 67.3 67.3 5.6 5.6 5.6

Im p o rts ................................................................. 48.3 49.8 63.3 63.3 63.3 4.6 4.6 4.6

Government .............................................................. 145.6 139.4 161.0 167.0 167.0 1.7 2.3 2.3

F e d e ra l................................................................. 73.8 65.4 66.0 67.0 64.0 -1 .9 - 1.6 -2 .3

State and local .................................................. 71.9 74.0 95.0 100.0 103.0 4.8 5.7 6.2

SOURCE: Historical data are from the U.S. Department of 1 Compound interest rate between terminal years.

Commerce, Office of Business Economics. Projections are by the

Bureau of Labor Statistics.

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pared without the influence of the size of the demand 

components that result from a particular set of assumptions. 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 accounting system.

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 individuals. The continuing decline of agricultural employment, 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 manufacturing sector as a source of employment growth—all of 

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 activities would entail some problems. Although the projections to 1975 show unemployment at 3.8 percent, the required 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 employment is projected for construction, wholesale and retail 

trade, State and local government, and selected service 

industries. The occupational composition of these sectors is much different from the defense-related sectors in 

terms of both highly skilled jobs, such as scientists and

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 adjustments 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 Department 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 projected for 1975, while far from new, does present 

continuing problems because usually this farm employment 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, productivity 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.

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 

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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 occupations with a high skill or training requirement such as 

medicine, nursing, accounting, and computer programming 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 employment 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 construction 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 employment 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.

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Chapter II. Employment Implications of Changing

Government Expenditures

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 expenditures 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

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.

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,

Table 5. Federal Government purchases of goods and services, and average annual rates of change, selected years, 

1959-75

(Billions of dollars)

Purchases 1£59 1965 1969 1970 Projected

1975

Average annual rate of change1

1959-65 1965-69 1969-75

Federal Government Purchases:

Current D o lla rs ............................................ 53.6 66.9 99.2 97.2 114.1 3.8 10.3 2.4

National defense................................... 46 .0 50.1 78.4 75.3 81.8 1.4 11.8 0.7

N on defense............................................ 7.6 16.8 20.7 21.9 32.3 14.1 5.4 7.7

Constant 1958 Dollars .............................. 52.5 57.9 73.8 65.4 66.0 1.6 6.3 - 2.2

National defense................................... 45.1 43.4 58.3 50.7 47.0 - 0.6 7.7 -3 .6

N on defense............................................ 7.4 14.5 15.5 14.7 19.0 11.9 1.7 3.5

As a Percent of GNP:

Current Dollars

F e d e ra l..................................................... 11.1 9.8 10.7 10.0 8.1 — — —

National d e fe n s e ........................... 9.5 7.3 8.4 7.7 5.8 — — —

Nondefense ................................... 1.6 2.5 2.2 2.2 2.3 — — —

Constant 1958 Dollars

F e d e ra l..................................................... 11.0 9.4 10.2 9.1 7.1 — — —

National d e fe n s e .......................... 9.5 7.0 8.0 7.0 5.0 — — —

Nondefense ................................... 1.6 2.3 2.1 2.0 2.0 — — —

1 Compound interest rate between terminal years.

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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 million 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 increasing 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.

Table 6. Employment effects of defense purchases1

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 attributable 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 employment 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 sector 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.

Sectors

Defense-related employment (thousands) As a percent of total em ploym ent

F Y 1965 FY 1968 FY 1970 FY 1971 CY 1975 FY 1965 FY 1968 FY 1970 FY 1971 CY 1975

Total, defense generated2 . . . . 5,759 7,828 7,085 6,123 5,415 8.3 10.2 8.9 7.7 6.2

Federal, m ilitary .................. 2,716 3,483 3,398 2,994 2,500 100.0 100.0 100.0 100.0 100.0

Federal, c iv ilia n ..................... 928 1,111 1,082 1,000 900 39.3 40.7 39.3 37.6 32.7

Private business..................... 2,102 3,217 2,589 2,130 2,005 3.9 5.5 4.2 3.5 3.0

Agriculture, forestry

and fisheries ............... 70 102 67 50 38 1.5 2.5 1.8 1.4 1.2

Mining ............................. 32 37 31 26 26 5.0 6.1 5.0 4.2 4.5

C o n s tru c tio n .................. 67 58 44 41 63 2.1 1.8 1.3 1.2 1.5

M a n u fa c tu rin g ............... 1,391 2,141 1,742 1,387 1,298 7.9 10.9 8.7 7.3 6.2

D u ra b le ..................... 1,212 1,829 1,517 1,207 1,112 12.1 15.9 12.9 11.1 9.1

Nondurable ............ 179 312 225 180 186 2.4 3.9 2.7 2.2 2.2

Transportation, communications, and

public u tilitie s ............ 163 331 250 214 166 4.1 7.7 5.6 4.7 3.5

Wholesale and

retail trade .................. 115 191 149 128 122 .9 1.4 1.0 .9 .8

Finance, insurance,

and real e s ta te ............ 39 51 46 40 43 1.3 1.5 1.3 1.1 1.1

Services .......................... 224 307 260 244 249 2.6 3.0 2.3 2.1 1.8

N O TE: Em ploym ent 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 of persons.

1 The defense purchases used in these calculations are

different from the national defense purchases in table 5. The

principal differences are that national defense includes purchases

by the Atom ic Energy Commission and stockpiling for national

defense purchases. Defense purchases do not include these items,

but reflect only the m ilitary activities of the Department of

Defense.

2 Includes a small effect on State and local government not

separately shown.

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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 employment per dollar of expenditure and thus keep the level 

of employment at about the 1965 level. In transportation, 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—particularly 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 purchases 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 FY 1968 FY 1970 FY 1971 Projected

1975

Ordnance ............................................................................... 138 241 203 149 135

Communications eq u ip m e n t............................................ 195 276 243 203 148

Electronic co m p o n e n ts ..................................................... 82 116 93 69 67

A ir c r a f t .................................................................................. 331 526 445 346 301

Other transportation e q u ip m e n t................................... 66 63 70 65 46

Transportation ................................ ................................... 117 260 191 162 117

T O T A L .................................................................................. 929 1,482 1,245 994 814

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Vietnam buildup. These same sectors are being affected 

most noticeably by the Vietnam phase out. Communications equipment and electronic components also increased greatly during this buildup, but at slower rates. 

In general, the defense requirements in Vietnam were 

not as electronically oriented as defense purchases in

Chart 1.

Defense employment as a percent of total

employment, selected years, 1965-75

20 40 60 80 100

Ordnance

Aircraft

Communications

equipment

Electronic

components

Other

transportation

equipment

Machine

shops

Nonferrous

metals

CY 19751

Scientific

instruments

Electric

equipment

Transportation

services

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 equipment.

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 economy.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.

Employment impact of alternative types of expenditures

As the war in Vietnam has wound down and defense 

expenditures have been reduced, other Federal expenditures 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 governments 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 productivity (employment requirement per dollar of output), 

alternative expenditures may generate different total

8 Richard Dempsey and Douglas Schmude, “Occupational

Impact of Defense Purchases,” Monthly Labor Review, December 1971, pp. 12-15.

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employment requirements as well as different industry 

distributions. These distributions are particularly important 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 expenditures. Also, the distribution for total personal consumption 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 industries receiving the differential influences of accelerated transfer payments.

For State and local governments, expenditure patterns 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 construction 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

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 employment 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

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

Federal expenditures

Current dollars Percent distribution

1965 1969 1970

Projected

1975 1965 1969 1970

Projected

1975

T O T A L ...................................................................... 124.7 191.3 206.2 268.0 100.0 100.0 100.0 100.0

Purchases ................................................................ 66.9 101.3 99.7 108.0 53.6 53.0 48.4 40.0

D e fe n s e ............................................................. 50.1 78.8 76.6 77.0 40.2 41.2 37.1 29.0

Nondefense ..................................................... 16.8 25.5 23.1 31.0 13.5 13.3 11.2 12.0

Grants ...................................................................... 11.1 20.2 24.4 40.0 8.9 10.6 11.8 15.0

Tran sfers................................................................... 32.5 52.1 62.0 100.0 26.1 27.2 30.1 37.0

Other ......................................................................... 14.2 17.7 20.1 20.0 11.3 9.3 9.7 7.0

State and local expenditures Current dollars Grants as a percent of expenditures

T O T A L ...................................................................... 74.5 118.9 131.2 201.0 14.9 16.9 18.6 20.0

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government is purchasing its own output, therefore, it 

purchases compensation only. However, when the government is purchasing private output, it is implicitly 

purchasing profit and depreciation as well as compensation, 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

10 The direct coefficients are based on extrapolations of

survey studies for different years. These have been adjusted

roughly for 1971 prices and 1975 productivity to put them all

on the same basis. See labor and material requirements studies

for different kinds of construction, BLS Bulletins 1390, 1402,

1404, 1441, 1490, 1586, and 1671 (1964 to 1971).

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 traditionally 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—education and health, welfare and sanitation. Excluded from 

these activities are construction of new facilities. Employment generated by State and local activities would 

be lower if they included construction. How much lower 

would depend on the weight of construction expenditures 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 construction, purchases of manufactured goods are great.

The indirect employment requirements for education 

are considerably lower than Tor the other activities, 

because of the relatively small amount of purchases from 

outside the government. The noteworthy aspect of the

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

demands, 1975

Demand sectors

Construction State and local

government

purchases2

Federal

purchases

Highways Residential3

construction Hospitals Sewers Educational

construction Education Health DOD

Indirect................................................................... ,21,730 28,495 21,481 20,407 22,512 13,434 25,996 28,440

Agriculture, forestry, and fisheries . . . . 260 1,536 342 440 389 839 1,424 567

M ining............................................................. 1,183 287 264 229 288 249 330 307

Construction (maintenance)...................... 265 309 233 199 235 1,156 827 1,198

Manufacturing............................................... 9,748 14,507 11,952 12,647 12,815 5,515 8,275 17,374

Transportation, communications and

public utilities .......................................... 2,726 2,763 2,061 1,818 2,202 1,984 2,380 2,335

T rade ............................................................. 2,818 4,844 3,074 1,764 3,109 1,119 2,137 1,875

Finance, insurance, and real estate . . . . 982 967 761 777 752 651 1,012 581

Services.......................................................... 3,748 3,282 2,794 2,533 2,722 1,921 9,611 4,203

Direct (new construction)................................. 26,257 26,604 26,470 21,919 19,913

Direct government ............................................ 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.

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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, administrators 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 government (DOD). The indirect employment per billion is 

largely in manufacturing, the level higher than that 

generated by construction. The affected industries within 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 between the size of the armed forces and material will 

affect the direct-indirect employment relationship. Defense expenditures as noted earlier are assumed to 

increase at the same time the Armed Forces are being 

reduced. Total employment, therefore, including armed

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 activity. 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, education, 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-related 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 perspective 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.

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Chapter III. Potential GNP, Income, and Demand

Projection of potential GNP

The assumptions discussed in chapter I described the 

general outline of the economy. The quantitative determination 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 demand 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 manhour.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

Model I

Average annual rate

of change1

1959-65 1965-69 1969-75

Total labor force (including armed fo rce s )................. 70,921 77,177 84,240 85,903 92,792 1.4 2.2 1.6

Unem ployed................................................................ 3,740 3,366 2,832 4,088 3,431 -1.8 -4.2 3.2

Employed (persons concept) ................................. 67,181 73,811 81,408 81,815 89,361 1.6 2.5 1.6

Adjustment to jobs concept ............................... 3,496 3,878 5,598 4,709 5,000 1.7 9.6 -1.9

Employment (jobs concept) ......................................... 70,677 77,689 87,006 86,524 94,361 1.6 2.9 1.4

Government2 ............................................................. 9,930 11,994 14,727 14,483 16,035 3.1 5.4 1.4

F ed e ra l..................................................................... 4,239 4,569 5,529 5,109 4,535 1.2 4.9 -3.3

Military ................................................................ 2,543 2,732 3,463 3,096 2,500 1.2 6.1 -5.3

C ivilian.................................................................. 1,696 1,837 2,066 2,013 2,035 1.3 3.0 -0.3

State and local ....................................................... 5,691 7,425 9,198 9,374 11,500 4.5 4.6 3.8

Private........................................................................... 60,747 65,695 72,279 72,041 78,326 1.3 2.4 1.3

Agriculture ............................................................. 5,519 4,338 3,587 3,416 3,000 -3.9 -4.7 -2.9

Nonagriculture....................................................... 55,228 61,357 68,692 68,625 75,326 1.8 2.9 1.5

'Average annual man-hours paid, private...................... 2,078 2,051 1,991 1,966 1,964 -.2 -0.7 -0.1

Agriculture.................................................................. 2,350 2,376 2,304 2,288 2,274 .2 -0.8 -0.2

Nonagriculture ............................................ ............. 2,051 2,028 1,975 1,950 1,964 -.2 -0.7 -0.1

Total man-hours (millions), private............................... 126,221 134,781 143,912 141,624 154,762 1.1 1.7 1.2

Agriculture.................................................................. 12,972 10,307 8,263 7,816 6,822 -4.3 -5.4 -3.1

Nonagriculture .......................................................... 113,249 124,474 135,649 133,808 147,940 1.6 2.2 1.5

GNP per man-hour (1958 dollars), p riv a te ................. 3.43 4.21 4.61 4.66 5.63 3.5 2.3 3.4

Agriculture.................................................................. 1.63 2.30 2.93 3.06 3.91 5.9 6.2 4.9

Nonagriculture .......................................................... 3.64 4.36 4.72 4.75 5.71 3.1 2.0 3.2

Total GNP (billions of 1958 d ollars)............................ 475.9 617.8 724.7 720.0 3 936.7 4.4 4.1 4.4

G overnm ent................................................................ 42.5 50.8 60.7 60.6 65.3 3.0 4.5 1.2

Federal ..................................................................... 20.2 21.8 25.9 24.3 21.9 1.3 4.4 -2.7

Military ................................................................ 10.2 10.9 13.7 12.5 9.9 1.1 5.9 -5 .3

C ivilian.................................................................. 10.0 10.9 12.2 11.8 12.0 1.5 2.9 -0.3

State and local ........................................................ 22.3 29.0 34.7 36.4 43.4 4.5 4.6 3.8

Private........................................................................... 433.4 567.0 664.0 659.4 871.4 4.6 4.0 4.6

Agriculture ............................................................. 21.1 23.7 24.2 23.9 26.7 2.0 0.5 1.7

Nonagriculture........................................................ 412.3 543.3 639.8 635.5 844.7 4.7 4.2 4.7

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 government GNP. Elsewhere in this report, employment in government

is from the Bureau of Labor Statistics. There are conceptual differences 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.

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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 estimate 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.

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 estimated 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.

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.

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.

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 numbers of part-time employees contributed more to the 

decline in hours than changes in the scheduled workweek. 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 possible 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 projections are assumed not to change.

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 projections are measures of 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.

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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 government 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.

Potential GNP growth rate. By combining the projections of labor force, changes in hours and output per 

man-hour, the 1975 private GNP is determined. Projected 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

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 assumption means that all wage increases for government employees are

counted as price increases with no allowance for productivity

gains.

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 income creates demand.18

Income components. The model estimates the various 

components of aggregate income consistent with assumed 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 employment, 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

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 of 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.

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

1975, model I

Projected

1975

Average annual rate of change1

Components 1959 1965 1969 1970 Projected

1969-75Model I

1959-65 1965-69

Gross national product ............................................ 483.7 684.9 929.1 974.1 1,405.0 6.0 7.9 7.1

Less:

Capital consumption and corporate

profit ............................................................. 93.0 135.9 159.7 158.4 270.0 6.5 4.1 9.1

Indirect business t a x ....................................... 42.4 62.5 85.7 92.9 135.0 6.7 8.2 7.9

Social security contributions ...................... 17.6 29.6 54.0 57.6 84.0 9.1 16.2 7.6

Plus:

Government transfers ..............' . .................. 24.9 37.2 62.2 75.6 118.0 6.9 13.7 11.3

Interest ............................................................. 13.6 20.5 29.0 31.7 40.0 7.1 9.1 5.5

Dividends.......................................................... 12.6 19.8 24.4 25.0 37.0 7.8 5.4 7.2

Other2 ................................................................ 1.7 4.5 5.2 6.2 2.0 na na na

Personal incom e......................................................... 383.5 538.9 750.3 803.6 1,113.0 5.8 8.6 6.8

Disposable personal income ............................ 337.3 473.2 634.2 687.8 960.0 5.8 7.6 7.2

Disposable personal income (1958

dollars)................................................................ 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.

1 Compound 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 differences. 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 inincome 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 expenditures, 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

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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 purchases 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 expenditures. 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:

1. large increases in transfer payments and the lower

personal taxes resulting from the tax reform bill both

of which stimulate personal consumption spending;

2. increases in Federal grants-in-aid which stimulate State

and local government spending;

3. assumed interest rates which stimulate residential construction 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 transfer 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)

Components 1959 1965 1969 1970 Projected

1975

Average annual rate of change1

1959-65 1965-69 Projected

1969-75

Gross national product ............................................ 475.9 617.8 724.7 720.0 935.0 4.4 4.1 4.4

Personal consumption expenditures .............. 307.3 397.7 469.3 475.9 614.0 4.4 4.2 4.6

Gross private domestic investm ent................. 73.6 99.2 109.6 102.2 156.0 5.1 2.6 6.1

Nonresidential investm ent......................... 44.1 66.3 80.1 78.6 108.0 7.0 4.8 5.1

Residential structures................................. 24.7 23.8 23.1 21.3 41.0 -0.6 -0.8 10.0

Change in inventories................................. 4.8 9.0 6.4 2.3 7.0 11.0 -8.2 1.5

Net e x p o rts .......................................................... .3 6.2 .1 2.4 4.0 — — —

E x p o rts .......................................................... 23.8 37.4 48.5 52.2 67.3 7.8 6.7 5.6

Im p o rts .......................................................... 23.5 31.2 48.3 49.8 63.3 4.8 11.5 4.6

Government.......................................................... 94.7 114.7 145.6 139.4 161.0 3.2 6.1 1.7

Federal .......................................................... 52.5 57.9 73.8 65.4 66.0 1.7 6.3 -1.9

State and local ............................................ 42.2 56.8 71.9 74.0 95.0 5.1 6.1 4.8

Percent Distribution

Gross national product ............................................ 100.0 100.0 100.0 100.0 100.0

Personal consumption expenditures.............. 64.6 64.4 64.8 66.1 65.7

Gross private domestic investm ent................. 15.5 16.1 15.1 14.2 16.7

Nonresidential investm ent......................... 9.3 10.7 11.1 10.9 11.6

Residential structures................................. 5.2 3.9 3.2 3.0 4.4

Change in inventories................................. 1.0 1.5 0.9 0.3 0.7

Net e x p o rts .......................................................... 0.0 1.0 0.0 0.3 0.4

E x p o rts .......................................................... 5.0 6.1 6.7 7.3 7.2

Im p o rts .......................................................... 4.9 5.1 6.7 6.9 6.8

Government.......................................................... 19.9 18.6 20.1 19.4 17.2

Federal .......................................................... 11.0 9.4 10.2 9.1 7.1

State and local ............................................ 8.9 9.2 9.9 10.3 10.2

SOURCE: Historical data are from the U.S. Department of 1 Compound interest rate between terminal years.

Commerce, Office of Business Economics. Projections are by the

Bureau of Labor Statistics.

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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 estimated 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 assumptions in terms of possible trade offs such as the familiar 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 government 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, transfer payments, and corporate and personal income taxes. 

Purchases of goods and service by the Federal Government are an exogenous part of the demand side of the 

model as are other Federal exenditures, transfer payments 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 expenditures returning to a rate of increase similar to the pre-Vietnam, 1959-65, experience. In the projected period, however, 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 projected 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 expenditures requires a clear statement about their limitations. 

First, the price assumptions affect government expenditures and revenues more than other components of the

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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 proposition, 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)

Projected Average annual rate of change1

Budgets 1959 1965 1969 1970 1975

Projected

Model I 1969-75 1959-65 1965-69

Federal Government Budget

Receipts ................................................................ 89.7 124.7 196.9 191.5 277.0 5.7 12.1 5.9

Expenditures....................................................... 91.0 123.5 189.5 205.1 268.0 5.2 11.3 4.6

Surplus or deficit ...............................................

State and Local Government Budget

-1 .3 1.2 7.3 -13.6 9.0 — — —

Receipts ................................................................ 46.0 75.5 119.0 133.4 201.0 8.6 12.0 9.1

Expenditures........................................................ 46.8 74.5 118.9 132.9 201.0 8.1 12.4 9.1

Surplus or deficit ............................................... -0.8 1.0 0.1 0.5 0 . 0 — — —

SOURCE: Historical data are from the U.S. Department of 1 Compound interest rate between terminal years.

Commerce, Office of Business Economics. Projections are by the

Bureau of Labor Statistics.

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Chapter 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-industry 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 relationships 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 government 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

19 The methods used in developing these estimates are

available from the Bureau on request, as well as tables of the

final demand by producing sector for selected years and

projected to 1975. In addition, the 1975 inverse matrix is

available.

2 0 Detailed industry output and employment for each of the

80 sectors is available on request.

projections imply an increase of over 8 million jobs from 

the 1970 level.

Sector changes

G o o d s-p ro d u cin g se c to rs. 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-manufacturing—for which employment growth is expected to be 

slower than during the 1960’s. Only one goods-producing 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 employment in industries heavily oriented toward defense are 

not expected to continue at the same pace. Employment, however, is expected to rise about 800,000 from 

1969 to 1975. From the 1970 low, employment in manufacturing is projected to increase nearly 1.5 million.

As In the past, changes in employment in individual 

manufacturing industries will vary widely as the sector is 

more heterogeneous than the others. Variation in demand and productivity within the sector is as great as it 

is between this sector and the other major sectors.

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Table 14. Civilian employment and average annual rates of change, by major sector, selected years, 1959-70 and

projected 1975

(Thousands of jobs)

Major Sector 1959 1965 1967 1968 1969 1970

Projected

1975

Average annual rate of

change1

1959-65 1965-69

Projected

1969-75Model I

Total .......................................................... 67,882 74,568 78,906 80,790 83,080 83,293 91,430 1.6 2.7 1.6

Agriculture, forestry and fisheries . . . 5,822 4,671 4,196 4,148 3,932 3,729 3,350 -3.6 -4.2 -2.6

Mining ....................................................... 769 667 649 641 654 659 620 -2.5 -0.5 -0.9

Construction ............................................ 3,717 3,994 3,981 4,033 4,208 4,117 5,100 1.2 1.3 3.3

Manufacturing .......................................... 17,061 18,454 19,805 20,141 20,545 19,756 21,295 1.3 2.7 0.6

D u ra b le ............................................... 9,400 10,644 11,670 11,866 12,119 11,438 12,495 2.1 3.3 0.5

Nondurable ....................................... 7,661 7,810 8,135 8,275 8,426 8,318 8,800 0.3 1.9 0.7

Transportation, communications, and

public u tilitie s ....................................... 4,219 4,250 4,470 4,523 4,633 4,702 4,935 0.1 2.2 1.1

T ra d e .......................................................... 13,947 15,352 16,160 16,658 17,274 17,614 18,940 1.6 3.0 1.5

Finance, insurance and real estate . . . 2,901 3,367 3,569 3,719 3,896 4,021 4,450 2.5 3.7 2.2

Services....................................................... 8,888 11,118 12,194 12,765 13,412 13,817 15,950 3.8 4.8 2.9

Government............................................... 8,083 10,091 11,398 11,845 12,204 12,599 14,550 3.7 4.9 3.0

Households ............................................... 2,575 2,604 2,484 2,317 2,322 2,281 2,240 0.2 -2.8 -0.6

Percent Distribution

Total .......................................................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Agriculture, forestry and fisheries . . . 8.6 6.3 5.3 5.1 4.7 4.5 3.7

Mining ....................................................... 1.1 0.9 0.8 0.8 0.8 0.8 0.7

Construction ............................................ 5.5 5.4 5.0 5.0 5.1 4.9 5.6

Manufacturing .......................................... 25.0 24.7 25.1 24.9 24.7 23.7 23.3

D u ra b le ............................................... 13.7 14.3 14.8 14.7 14.6 13.7 13.7

Nondurable ....................................... 11.3 10.5 10.3 10.2 10.1 10.0 9.6

Transportation, communications, and

public u tilitie s ....................................... 6.2 5.7 5.7 5.6 5.6 5.6 5.4

T ra d e .......................................................... 20.5 20.6 20.5 20.6 20.8 21.1 20.7

Finance, insurance and real estate . . . 4.3 4.5 4.5 4.6 4.7 4.8 4.9

Services....................................................... 13.1 14.9 15.5 15.8 16.1 16.6 17.4

Government............................................... 11.9 13.5 14.4 14.7 14.1 15.1 15.9

Households ............................................... 3.8 3.5 3.2 2.9 2.8 2.7 2.4

NOTE: Includes wage and salaried employees and self employed and unpaid family workers. Employment is a count of

jobs rather than a count of individuals, thus, a person who

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 construction, particularly utilities, government construction of 

sewage treatment facilities, urban redevelopment, and 

rapid transit facilities.

S ervice-p ro d u cin g secto rs. In the service-producing industries, 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 secholds more than one job would be counted more than once in

this series.

1 Compound interest rate between terminal years.

tors. The projections for service-producing sectors, 

1969-75, are for continued, if not increased, rates of 

growth in output, some modest increases in productivity, 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 accelerating 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

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the gap in productivity between this sector and manufacturing 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-producing 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 1965- 

69 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 employment.

Trends in selected industries' output and employment

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 instance, 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

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 increases 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 employment 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 reasonable steady growth in output, but has had a decline in 

employment caused by declines in railroads employment. 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 employment is expected to increase to keep pace with increased

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Table 15. Trends in output and employment in selected industries,1 selected periods, 1959-69 and projected 1969-75

(Average annual rates of change2 )

Sectors

Output3 Employment 4

1959-65 1965-69

Projected

1969-75 1959-65 1965-69

Projected

1969-75

Construction-related sectors:

New construction....................................................... 2.7 0.8 5.5 1.2 1.3 3.3

Lumber and wood products .................................... 3.0 1.5 5.0 -1.2 -0.3 -0.2

Glass .............................................................................. 4.1 3.8 5.3 1.9 2.0 2.0

Stone and clay products............................................. 3.4 5.5 6.2 0.3 0.6 1.5

Household furniture .................................................. 3.2 4.0 4.7 1.9 2.1 2.1

Defense-related sectors:

Ordnance ................................................................... . na 17.4 -4.1 1.7 9.0 -5.7

Communications equipm ent.................................... 12.7 9.0 1.2 3.3 5.5 -0.8

Electronic components ............................................ 12.5 12.1 6.5 6.3 6.0 1.2

Aircraft ........................................................................ 0.8 11.5 -0.5 -2.4 6.8 -3.8

Other manufacturing sectors:

Synthetic fibers .......................................................... 8.6 7.4 7.2 4.5 3.9 3.3

Rubber and plastic products.................................... 7.0 8.0 6.9 3.9 5.9 2.7

Computers ................................................................... 10.6 18.4 10.0 5.6 9.6 4.0

Optical, ophthalmic, and photographic

equipment ................................................................ 10.3 12.2 8.6 3.3 6.3* 3.2

Other nonmanufacturing sectors:

C o a l................................................................................ 2.8 0.8 2.6 -5.3 -1.0 -1.0

Transportation............................................................. 4.3 4.9 4.3 -0.2 1.6 0.6

Communications ....................................................... 7.3 9.0 6.5 0.6 4.4 2.2

Utilities ........................................................................ 5.8 7.4 6.0 0.3 1.6 1.1

Medical, educational, and nonprofit

organizations............................................................. 5.0 4.5 6.5 4.1 5.4 4.2

G ro w th rates in output and employment for all industries 4 Average annual rate of increase in civilian employment on a

are available on request. jobs concept. Employment includes wage and salary employees

2 Compound interest rate between terminal years. and self employed and unpaid family workers.

3 Average annual rate of increase in gross duplicated output

in real terms.

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 employment, although not as high as in the past.

The previous discussion of individual sectors has

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highlighted those sectors employment in which is projected 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:

(in millions)

State and local government ........................... 2.4

Wholesale and retail trade ............................. 1.6

Medical, educational, and nonprofit

organizations................................................. 1.7

Construction..................................................... .9

T o ta l........................................................ 6.6

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Chapter 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—the basic model or model I. In this chapter, the 

two alternative models will be discussed in detail.

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 complete 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 modified 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 Government 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.

Gross national product and components

P o te n tia l GNP. 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

factor which affects potential GNP is the projected split 

between public and private employment. In the environmental model, the State and local government employment 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).

C o m p o n e n ts o f GNP. 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 projected 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 expenditures 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

28

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Table 16. Labor force, employment, hours, productivity, and gross national product, 1969 and projected 1975 for 3

economic models

Category 1969

1975 Average annual rate of change1

Projected 1969-75

Model I Model II Model III Model I Model II Model III

Total labor fo r c e ............................................ 84,240 92,792 92,792 92,792 1.6 1.6 1.6

U nem ployed............................................ 2,832 3,431 3,431 3,431 3.2 3.2 3.2

Employed (persons) ............................... 81,408 89,361 89,361 89,361 1.6 1.6 1.6

Adjustment to jobs concept .... 5,598 5,000 5,000 5,000 -1.9 -1.9 -1.9

Employment (jobs concept) ...................... 87,006 94,361 94,361 94,361 1.4 1.4 1.4

Government2 .......................................... 14,727 16,035 16,135 16,135 1.4 1.5 1.5

F ed e ra l............................................... 5,529 4,535 4,535 4,435 -3.3 -3 .3 -3.6

Military ....................................... 3,463 2,500 2,500 2,400 -5.3 -5 .3 -5.9

Civilian ....................................... 2,066 2,035 2,035 2,035 -0.3 -0.3 -0.3

State and local ................................. 9,198 11,500 11,600 11,700 3.8 3.9 4.1

P riv ate ....................................................... 72,279 78,326 78,226 78,226 1.3 1.3 1.3

Agriculture ....................................... 3,587 3,000 3,000 3,000 -2.9 -2.9 -2.9

Nonagriculture................................. 68,692 73,326 75,226 75,226 1.5 1.5 1.5

Average annual man-hours paid for

p riv a te ....................................................... 1,991 1,976 1,976 1,976 -0.1 -0.1 -0.1

Agriculture ....................................... 2,304 2,274 2,274 2,274 -0.2 -0.2 -0.2

Nonagriculture................................. 1,975 1,964 1,964 1,964 -0.1 -0.1 -0.1

Total man-hours (millions)

p riv a te ....................................................... 143,912 154,762 154,566 154,566 1.2 1.2 1.2

Agriculture ....................................... 8,263 6,822 6,822 6,822 -3.1 -3.1 -3.1

Nonagriculture................................. 135,649 147,940 147,744 147,744 1.5 1.4 1.4

GNP per man-hour (1958 dollars)

p riv a te ....................................................... 4.61 5.63 5.63 5.63 3.4 3.4 3.4

Agriculture ....................................... 2.93 3.91 3.91 3.91 4.9 4.9 4.9

Nonagriculture................................. 4.72 5.71 5.71 5.71 3.2 3.2 3.2

Total GNP (1958 dollars) ............................ 724.7 936.7 936.0 936.0 4.4 4.4 4.4

Government ............................................ 60.7 65.3 65.7 65.7 1.2 1.3 1.3

F ed e ra l............................................... 25.9 21.9 21.9 21.5 -2.7 -2.7 -3.1

Military ....................................... 13.7 9.9 9.9 9.5 -5.3 -5 .3 -5.9

Civilian ....................................... 12.2 12.0 12.0 12.0 -0 .3 -0 .3 -0 .3

State and local ................................. 34.7 43.4 43.8 44.2 3.8 4.0 4.1

P riv a te ....................................................... 664.0 871.4 870.3 870.3 4.6 4.6 4.6

Agriculture ....................................... 24.2 26.7 26.7 26.7 1.7 1.7 1.7

Nonagriculture ............................... 639.8 844.7 843.6 843.6 4.7 4.7 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

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 nonresidential 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,

the report the government employment is from the Bureau

of Labor Statistics.

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 environmental 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 environmental 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 projected at 3 billion dollars higher in model III, and these

29

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(Billions of 1958 dollars)

Table 17. Components of gross national product and average annual rates of change, selected years 1959-70 and

projected 1975

Components 1959 1965 1969 1970

Projected 1975

Average annual rate of change1

1959-65 1965-69

Projected 1969-75

Model

I

Model

II

Model

III Model

I

Model

II

Model

III

Gross national p ro d u ct...................... 475.9 617.8 724.7 720.0 935.0 935.0 935.0 4.4 4.1 4.4 4.4 4.4

Personal consumption

expenditures............................... 307.3 397.7 469.3 475.9 614.0 614.0 614.0 4.4 4.2 4.6 4.6 4.6

Gross private domestic

investm ent................................. 73.6 99.2 109.6 102.2 156.0 150.0 150.0 5.1 2.6 5.1 5.4 5.4

Nonresidential ...................... 44.1 66.3 80.1 78.6 108.0 112.0 112.0 7.0 4.8 5.0 5.7 5.7

Residential............................... 24.7 23.8 23.1 21.3 41.0 31.0 31.0 -0 .6 -0.8 10.0 5.0 5.0

Change in inventory.............. 4.8 9.0 6.4 2.3 7.0 7.0 7.0 11.0 8.2 1.5 1.5 1.5

Net expo rts.................................... .3 6.2 .1 2.4 4.0 4.0 4.0 — — — — —

E xports.................................... 23.8 37.4 48.5 52.2 67.3 67.3 67.3 7.8 6.7 5.6 5.6 5.6

Im p orts.................................... 23.5 31.2 48.3 49.8 63.3 63.3 63.3 4.8 11.5 4.6 4.6 4.6

Government ................................. 94.7 114.7 145.6 139.4 161.0 167.0 167.0 3.2 6.1 1.7 2.3 2.3

Federal .................................... 52.5 57.9 73.8 65.4 66.0 67.0 64.0 1.7 6.3 -1.9 -1.6 -2.3

State and local ...................... 42.2 56.8 71.9 74.0 95.0 100.0 103.0 5.1 6.1 4.8 5.7 6.2

Percent Distribution

Gross national p ro d u ct...................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Personal consumption

expenditures............................... 64.6 64.4 64.8 66.1 65.7 65.7 65.7

Gross private domestic

investm ent................................. 15.5 16.1 15.1 14.2 16.7 16.0 16.0

Nonresidential ...................... 9.3 10.7 11.1 10.9 11.6 12.0 12.0

Residential............................... 5.2 3.9 3.2 3.0 4.4 3.3 3.3

Change in inventory.............. 1.0 1.5 0.9 0.3 0.7 0.7 0.7

Net expo rts.................................... 0.0 1.0 0.0 0.3 0.4 0.4 0.4

E xports.................................... 5.0 6.1 6.7 7.3 7.2 7.2 7.2

Im p orts.................................... 4.9 5.1 6.7 6.9 6.8 6.8 6.8

Government ................................. 19.9 18.6 20.1 19.4 17.2 17.9 17.9

Federal .................................... 11.0 9.4 10.2 9.1 7.1 7.2 6.8

State and local ...................... 8.9 9.2 9.9 10.3 10.2 10.7 11.0

SOURCE: Historical data are from the U.S. Department of

Commerce, Office of Business Economics. Projections are by the

Bureau of Labor Statistics.

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.

Industry structure of demand

The use of an input-output model for developing employment 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 structure 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.

1 Compound interest rate between terminal years.

E n viro n m en ta l m o d e l. The environmental model assumes $4.0 billion (1958 dollars) will be spent by 

business for pollution control in 1975. Reports prepared 

by the Federal Water Quality Administration21 and the

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 of 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 of the U.S.

Department of Commerce, Business Defense Services Administration, printed in June 1968 Water and Waste Engineering.

30

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Federal Reserve Bank of St. Louis
National Air Pollution Control Administration2 2 provide useful information for the distribution of this $4.0

V

billion to producing industries.

These studies do not cover all industries or all 

possible pollutants, but the coverage probably is indicative of those industries which might be most affected. 

The pollutants covered are particulates, sulphur oxides, 

hydrocarbons, carbon monoxide, settleable and suspended 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

2 2 Research Triangle Institute, Comprehensive Economic

Cost Study o f Air Pollution Control Costs for Selected Industries

and Regions, Research Triangle Park, North Carolina, Feb. 1970;

U.S. Department of Health, Education and Welfare, National Air

Pollution Control Administration, Control Techniques for Particulate Air Pollutants, Washington, D.C., U.S. Government

Printing Office, Jan. 1969; and U.S. Department of 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.

control on producer durable equipment producing industries 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, compressors, 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 

spent by State and local enterprises for sewer lines and 

sewage treatment plants. Input data from a study of 

labor and material requirements2 3 is used to provide the 

industry breakdown. The remaining 1.2 billion dollars of 

expenditures in the enterprises category in 1975 is

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 of air and water pollution control equipment by producing industries, 1975

Industry number and title

Millions of 1958 dollars Percent distribution

Air Water Total Air Water Total

TOTAL ........................................................................... 1,344.2 2,655.8 4,000.0 100.0 100.0 100.0

11 New construction.................................................. 93.2 — 93.2 6.9 — 2.3

36 Stone and clay products ....................................

40 Heating, plumbing, and fabricated

— 10.4 10.4 — .4 .3

structural metal products.................................

48 Special industry machinery and

144.1 956.7 1,100.8 10.7 36.0 27.5

equipm ent.............................................................

49 General industrial machinery and

15.7 15.7 .6 .4

equipm ent............................................................. 965.9 749.6 1,715.5 71.9 28.2 42.9

52 Service industry machines .................................

62 Professional, scientific, and controlling

— 385.1 385.1 14.5 9.6

instruments and supplies .................................

— 253.1 253.1 — 9.5 6.3

65 Transportation and warehousing...................... 48.4 46.0 94.4 3.6 1.7 2.4

69 Wholesale and retail trade ................................. 92.6 239.2 331.8 6.9 9.0 8.3

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Table 19. 1975 State and local government expenditures 

by activity, basic and environmental model

(Billions of 1958 dollars)

Activity Basic model

Environmental

model

Total .......................... 195.0 100.0

Education . . . . 33.8 33.8

Enterprises .. . . 7.6 11.3

Sanitation ... . 0.9 2.2

All o t h e r ............ 52.7 52.7

1 For a more detailed breakdown of 1975 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 sanitation (largely solid waste collection and disposal) is 

projected to be directed toward those industries noted 

which produce equipment used for air pollution abatement.

In describing what was done to develop an input-output 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 developed 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 pollutants 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.

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 discussions are highly classified and certain highly arbitrary

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)—.4 billion, and .2 billion dollars for other transportation 

equipment. The ordnance reduction would follow directly 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 expenditures fall into the enterprises category. Most of 

these expenditures ultimately would go to construction, although some of these expenditures would be 

involved in urban transit equipment.

Output and employment

The demand distributions prepared for the environmental 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.

Environmental model. In table 20, the sectors significantly 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

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Table 20. Average annual rates of change, output and employment, selected sectors, projected 1969-75

Average annual rate of change 1969-751

Sector O utput2 Em ploym ent3

Housing goals

model

Environmental

model Basic Environmental

model

Construction related sectors:

New and maintenance c o n s tru c tio n ............... 5.5 4.5 3.3 2.3

Lumber and wood p ro d u c ts ............................. 5.0 4.3 -0 .2 -0 .9

Stone and clay products ................................... 6.2 5.9 1.5 1.2

Electric lighting and wiring equipment . . . . 6.3 5.9 3.0 2.7

Pollution control-related sectors:

Primary iron and s te e l......................................... 1.5 1.7 -1 .0 -0 .8

General industrial machinery ........................... 4.3 8.7 1.7 6.0

Service industry machinery ............................. 7.3 8.3 2.7 3.8

Scientific and controlling instruments ... . 2.6 3.7 0.6 1.7

1 Compound interest rate between terminal years. 3 Employment is a count of jobs rather than persons. It in2 Gross duplicated output in real terms. eludes wage and salary employees and self employed and unpaid

fam ily workers.

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, because its construction related losses are offset by 

pollution control equipment-related gains.

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, electrostatic precipitators, air purification equipment, cyclonic 

wet scrubbers, dust collection equipment, sludge digestors, fume collecting equipment, afterburners, ventilators, settling tanks, and filter elements; service industry 

machines where sewage purification equipment is manufactured; and the scientific and controlling instrument 

sector, where measuring and controlling instruments are 

manufactured. Most other sectors are affected only 

slightly, if at all.

Table 21. Average annual rates of change,1 output and employment, selected sectors, projected 1969-75

Average annual rate of change, 1969-75

Sector

Output2 Em ploym ent3

Housing

goals

model

Environmental

model

Arms

lim itation

model

Basic

model

Environmental

model

Arms

lim itation

model

Construction-related:

New c o n s tru c tio n................................ 5.5 4.5 4.8 3.3 2.3 2.5

Lumber and wood p ro d u c ts ............ 5.0 4.3 4.5 -0 .2 -0 .9 -0 .7

Stone and clay p ro d u cts..................... 6.2 5.9 6.1 1.5 1.2 1.4

Electric lighting and wiring

equipment ......................................... 6.3 5.9 6.2 3.0 2.7 3.0

Defense-related:

Ordnance ............................................... -4 .1 -4.1 -6 .4 -5 .6 -5 .6 -7 .8

Machine s h o p s ...................................... 2.2 2.3 2.0 1.8 1.8 1.4

Communication equipment ............ 1.2 1.2 0.8 -0 .6 -0 .6 -1 .1

Aircraft .................................................. -0 .5 -0 .5 -1 .3 -3 .6 -3 .6 -4 .4

1 Compound interest rate between terminal years. 3 Employment is a count of jobs rather than persons. The

2Gross duplicated output in real terms. count includes wage and salary workers and self employed and

unpaid fam ily workers.

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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 aircraft. 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 environmental 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)

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Federal Reserve Bank of St. Louis
Announcing

The 1971

edition of the

HANDBOOK

OF LABOR

STATISTICS

A comprehensive

reference volume of

historical and

current data.

The H andbook 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 andbook of Labor Statistics,

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.)

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Room 6B7

Dallas, Tex. 75202

1371 Peachtree St.. NE

Atlanta, Ga. 30309

911 Walnut St. 450 Golden Gate Ave.

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B U R E A U O F LA B O R S T A T IS T IC S

R E G IO N A L O FFIC E S

Region I

1603 JFK Federal Building

Government Center

Boston, Mass. 02203

Phone: 223-6762 (Area Code 617)

Region II

1515 Broadway

New Y ork, N .Y . 10036

Phone: 971-5405 (Area Code 212)

Region III

406 Penn Square Building

1317 Filbert St.

Philadelphia, Pa. 19107

Phone: 597-7796 (Area Code 215)

Region IV

Suite 540

1371 Peachtree St. NE.

Atlanta, Ga. 30309

Phone: 526-5418 (Area Code 404)

Region V

8th Floor, 300 South Wacker Drive

Chicago, III. 60606

Phone: 353-1880 (Area Code 312)

Region V I

1100 Commerce St., Rm. 6B7

Dallas, Tex. 75202

Phone: 749-3516 (Area Code 214)

Region V II and VIII

Federal Office Building

911 Walnut St., 10th Floor

Kansas City, Mo. 64106

Phone: 374-2481 (Area Code 816)

Region IX and X

450 Golden Gate Ave.

Box 36017

San Francisco, Calif. 94102

Phone: 556-4678 (Area Code 415)

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Regions IX and X will be serviced by San Francisco.

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