You are both incorrect.
First the Prussian Army was Prussian all the way down the officers (mostly) but beneath that sphere it acquired a decidedly polyglot character. Normally the number of Prussian subjects is pegged somewhere between 20 and 30% for war and 40% for peace of the enlisted men with the rest having volunteered, been shanghaied or bought somewhere else.
Frederick the Great preferred his subjects to stay and home at be industrial and industrious to fill the warchest.
Second, the Prussian Army was not a full-time army. Most of the prussian subjects were there as part of a kind fo proto-conscription and had a lot of free time but very little money on their hands. Which endowned any garrison town with a huge cheap labour force in the form of the soldiers and there dependents (which, btw is at least in German lands a regularly recuring theme: Soldiers are only employed 'half-time' or even less by their respective commanding authority and work on the side to make ends meet). Also those same subjects would rejoin the regular workforce (under the canton system your term of service was, dejure, lifelong but in times of peace it consisted of two years of drill to get you battle ready and a two month refresher every years after that) as being 'on leave' from the army. Also certain groups (nobles, clerics, citizens, people from provinces crucial to the economy, certain trades) were completly free from the Kanton system.
Third, Prussia did not have many wars and therefore not many casualties (which in any case would only affect the citizen very marginally since they normally did not serve, and the peasant population only at 20% to 30 % of the butchers bill).
So in general I don't think 'the free labour went to army is correct' even more since after 1815 the Kanton System was replaced by a system of conscription.
Then everybody (for a very judiciously trimmed version of 'everybody') was to join the army for 7 years though that played out as 2 or maxiaml 3 years of actual staying in the barracks and 5 (or 4) years in the reserve (at home, ready for work) with people of at least Oberschulreife being able to volunteer for one year and then become reserve officers (which made them available to work after 1 year).
There was also a system of deferment, that is you could pay somebody to do your service in your stead, but that was generally frowned upon since the Wehrdienst was seen as a service of honor.
Also, thanks to a fast growing population, the army never drafted all the man they should have, leading to a shortfall in training, but, at the same time, more free workforce.
TL;DR:
No, the Prussian Army did not suck up all the Manpower.