occurred between 1989 and 1996 to their proximate causes. In the next section I examine international competitive challenges and forecast the effects of offsets and other types of international competition on industry employment for the next two decades. The paper concludes with a discussion of policy alternatives for addressing the industry's problems.

Employment Trends

Overall Trends

Between 1989 and 1995 total employment in the aerospace industry declined by 545,000 workers, as shown in Table 1. In 1996 output and employment began to recover and they improved in 1997 (AIAA, 1997), and are forecast to increase for several more years (Aviation Week and Space Technology, 1997). The most important causes of the decline in employment were (1) declining defense budgets, (2) a worldwide recession in commercial aircraft demand, and (3) the effects of increased international competition. Between 1989 and 1995 overall aerospace employment declined by 40 percent. The decline in employment had very similar effects on production and non-production employment in the aerospace industry. The share of production workers in total industry employment fell only by 1.6 percentage points between 1989 and 1995, and the production worker share recovered strongly in 1997 (AIAA, 1997).

The global recession in aircraft demand caused employment to fall in all major aircraft-producing nations, as shown in Table 2. Total aerospace employment in the triad countries (the United States, Europe, and Japan) fell by more than 550,000 workers, according to the European Commission (EC).2 However, the losses were not evenly spread. Employment in the United States and the United Kingdom, as reported by the EC, fell by about 42 percent between 1989 and 1995, but declined only 20 percent in the rest of Europe, 13 percent in Canada, and was unchanged in Japan. The United States absorbed about 74 percent of the job losses during this period, although only 62 percent of total triad aerospace employment was located in the United States in 1989.

As a result of these differential impacts, the U.S. share of aerospace employment in the triad countries declined by about 6 percentage points between 1989 and 1995, as shown in Figure 1. The other members of the triad all gained employment share, relative to the United States (with the exception of the United Kingdom, as shown in Table 2). Data reviewed below suggest that one reason that employment levels remained higher in Europe was the growing share of Airbus Industrie in commercial aircraft markets.

2  

The EC uses a narrower definition of the aerospace industry than does the Aerospace Industries Association of America, as shown in Table 2.



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