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Demand Changes with GDP and Employment Growth Constraints

Proops et al (1993, p.252) imposed a 2 percent growth constraint on both GDP and employment, ‘so that the growing productivity of labour [could] be taken into account, without needing the labour coefficients to be altered’. Both constraints, in addition to the 1 percent reduction in carbon dioxide emissions, were used to generate the results shown in column 6 of Table 2. In similar fashion to Figure 4, Figure 5 analyses the impact on the required changes to final demand caused by the employment constraint.

Figure 5 – Changes in Final Demands and the Introduction of an Employment Constraint
Figure 5 – Changes in Final Demands and the Introduction of an Employment Constraint.

The additional constraint is seen to cause very little variation to the required changes in final demand. This should not be surprising as those industries which have the largest final demands and consequently employ the greatest proportion of workers also require the largest increases in final demands to achieve 2 percent growth in GDP. Furthermore, in achieving this growth, a certain level of growth in employment is essential. Consequently, making the employment constraint explicit makes very little difference to the required changes in final demand.

Shown in the final two columns of Table 2 and contrasted in Figure 6 are the minimum disruption changes to final demand which arise from respectively 1.5 and 2 percent growth rates in GDP and employment, holding constant a 2 percent reduction in carbon dioxide emissions. The higher growth rate of 2 percent necessitates greater increases in final demand, which are sought from those industries which already required the largest increases in the case of the 1.5 percent growth rate. The resulting rise in carbon dioxide emissions is countered almost solely by one industry, rubber, plastic and other chemical product manufacturing (industry no. 19), which is required to reduce its final demand by a further 0.8 percent. These changes at the extremes of the distribution again increase the spread which leads to further increases in the cost of adjustment.

Figure 6 – Changes in Final Demand and an Increase in the Growth Rates
Changes in Final Demand and an Increase in the Growth Rates.

This result is magnified when the minimum disruptions of columns 6 and 9 are contrasted. Figure 7 shows the required changes to final demand in the case of 1 and 2 percent reductions in carbon dioxide emissions, holding constant 2 percent growth rates in GDP and employment. Achieving the 1 percentage point increase in the carbon constraint clearly requires relatively greater changes in final demand than that which was required to achieve the 0.5 percentage point increase in both growth rates.

Figure 7 – Changing the CO2 Reduction Requirement, with Growth and Employment Constraints
Changing the CO2 Reduction Requirement, with Growth and Employment Constraints.
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