Employment allocation: from branches to extended subsystems

Abstract

Interindustry data report employment levels by activity branch. Subsystems, as first introduced by Sraffa (1960), enable the partition of the productive network into distinct components associated with the production structure of a specific good, treating it as if it were isolated from the rest of the economy. In this paper, we propose a generalization of the standard subsystem concept that incorporates endogenous employment requirements arising from the output-labour-consumption links, which are typically overlooked. This extension allows employment to be allocated from branches to subsystems and enables the decomposition of employment levels into standard subsystem effects and induced subsystem effects.