Blocks and circularity in labour requirements: An interplay between clusters and subsystems in the EU

•We propose a methodology for identification of core industry blocks.•We combine clustering and subsystem approaches to structural analysis.•We use consolidated input–output tables for the EU27 (2000–2007).•We map interindustry relations highlighting synergies, spillovers and feedbacks.•Our methodology can be used to address innovation and industrial policy issues.

Clusters and subsystems are two frequently used tools in inter-industry analysis, the former clarifying structure while the latter summarising circularity. Since industry blocks with crucial direct linkages will probably have strong indirect ties as well, localised intra-cluster feedback effects may play a prominent role in explaining total labour requirements. In this paper, we first quantify the labour redistribution taking place between industries and subsystems within and between clusters. Next, we extend the standard notion of vertically integrated labour to account for intra- and extra-cluster circularity, quantifying the extent to which overall productivity growth in every subsystem originates from intra-cluster industries. Both issues are illustrated for the consolidated European Union (EU27) economy between 2000 and 2007.