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July 1998, Vol. 121, No. 7
Following the end of World War II, the Cold War and its accompanying arms race provided the U.S. economy with a period of relatively constant defense spending and defense-related employment growth. Real defense spending retrenched slightly in the years following the Vietnam War to a low of $266.4 billion in 1977, accounting for 6.2 percent of gross domestic product (GDP).1 Despite the negotiations and subsequent arms limitation treaties during the 1970s and 1980s, tensions remained between the Soviet Union and its sphere of influence and the United States and its NATO allies. Under the philosophy that the best deterrent against aggression is a strong defense, the U.S. Government quickly escalated defense spending in the 1980s. By 1987, U.S. defense spending reached a post-Vietnam War high of $409.2 billion, or 7.2 percent of GDP. In 1988, the Cold War ended as the winds of change felled the Berlin Wall. With renewed hopes for world peace, nearly 7 million people, roughly 6 percent of the U.S. labor force, whose jobs were tied to defense spending, were suddenly faced with a future of uncertainty.2
The 198796 period was marked by severe cuts in defense-related spending and employment. These reductions were felt across most industries and occupations in the economy. Real defense spending fell by $94.3 billion to 4.6 percent of GDP, and defense-related employment in the United States retracted by 2.5 million to 3.4 percent of the labor force.3 In 1996, defense-related employment was responsible for 255,000 fewer jobs than the previous post-Vietnam War low in 1977. Of the decline in employment, 42 percent, or 1 million jobs, was in Governmentincluding the Armed Forces, and civilians in the Department of Defense and nondefense agencies. The remainder of the decline in employment (1.5 million jobs) occurred among workers in the private sector. The greatest reductions in the private sector occurred in direct defense-related employment. A significant proportion of the decline in the private sector, 42.5 percent, or 605,000 jobs from 198796, is attributed to indirect defense-related employment. These reductions in defense-related spending and employment left few areas of the labor market untouched.
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1 All data for this article are on a calendar-year basis.
2 This article is part of a continuing series from the Bureau of Labor Statistics, Office of Employment Projections: U.S. Defense Related Employment Retrenches, Issues in Labor Statistics, May 1995; and Norman Saunders, "Employment effects of the rise and fall of defense spending," Monthly Labor Review, April 1993, pp. 310.
3 Employment generated by defense spending can be divided into two categoriesdirect and indirect. Nearly all industries have some combination of direct and indirect defense-related employment. Direct defense-related employment evolves from the Defense Departments spending on all final goods and services. Indirect defense-related employment arises from the need to supply inputs to the producers of these final goods and services.
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