An analysis illustrating the direct and indirect role of government policy in generating employment begins by documenting the level and composition of government spending over the last 50 years. In 1929, federal, state, and local expenditures amounted to 10 percent of the Gross National Product (GNP); by 1980, government expenditures represented one-third of the GNP. The next section examines the employment generated by different types of government spending in 1980--the number of jobs, the types of jobs, and the types of workers who held these jobs. Government spending generated 34 percent of all civilian employment in 1980. More than 40 percent of the jobs in the public sector were high-level professional and managerial jobs, compared to 25 percent of the jobs in the private sector. The public sector generated more than one-third of all high-level jobs for women in 1980--over 50 percent for black women. The last section of the analysis discusses the consequences of shifting government spending from one category to another. An increase in defense spending will create jobs in aircraft, ordnance, and other manufacturing industries. A reduction in federal nondefense spending or in state and local purchases will reduce employment opportunities for college graduates, women, and minorities more than for other groups of workers. (MLF)