Chapter 8 Services• Complexity in defining and measuring

services• Diversity in industries and occupations• Why have services grown so rapidly?• The productivity issue in services• Work in the service sector• The position of finance and producer

services• Globalization of services• Consumer services & tourism

Services

• The “tertiary” sector – diversity of occupations and industries

• The so-called “post-industrial” era

• The ongoing changing division of labor

• Service industries vs. service occupations vs. service functions (consumer use of service industries)

Key Lines of ServiceEmployment

1980 Distribution of Occupations by Industry

Executive P/Tech Sales Admin/ClerOther Service

Precision craft/

Machinery Operators

Transport & Material Handling

Handers & Other Labor Total

Agriculture 3214Mining 937Construction 6175Manufacturing 21379TCU 6468Wholesale 3792Retail 16001FIRE 5918PrivateHH 1252Other Services 27419Public Administration 5245Total 978001980 Total 11017 16035 6254 20361 11803 12469 10510 3504 4293

0-1% + 1-5% + 5-10% + 10-25% + 25-50% + 50%+ zero - blank0-1% - 1-5% - 5-10% - 10-25% - 25-50% - 50% -

Change in Occupations United States 1980-2000

Executive P/Tech Sales Admin/ClerOther Service

Precision craft/

Machinery Operators

Transport & Material Handling

Handers & Other Labor Total

Agriculture No change 276Mining -409Construction 3137Manufacturing -1341TCU 3272Wholesale 1562Retail 6180FIRE 3041PrivateHH -302Other Services 20937Public Administration 818Total 37171

Change (thousands) 8589 9436 10126 -1525 5548 2472 -3259 1960 876

0-1% + 1-5% + 5-10% + 10-25% + 25-50% + 50%+ 100%_+0-1% - 1-5% - 5-10% - 10-25% - 25-50% - 50% - -100%blank - zero in 1980

? Role of New Economy Industries?

Across Most Occupations Job Gains Have Been Largely in Services

? How muchof this growthhas been inNew EconomyIndustries?

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Services Change

% Services

Forces Driving the Growth of Services

• Rising Incomes (income elasticity of demand for particular services) Fig 8.5

• Demand for health care and education (Figures 8.7 & 8.8)

• Increasingly complex division of labor – innovations in services

• Growth of the public sector – services & regulation

• Service Exports – regional & international• Externalization Processes

Table 9 Geographic Markets for Producer Service Establishments, Urban-OrientedSample

Market Location:WeightedAverage

UnweightedAverage

Local 44.55% 66.81%Elsewhere in State 8.14% 10.31%Elsewhere in Region 10.34% 7.65%Elsewhere in U.S. 31.00% 12.58%Canada 3.48% 0.63%Mexico 0.32% 0.23%Other Foreign 2.17% 1.79%

n=249 n=350

Aggregate sales - $1.5 billion for weighted estimate

Producer Services have considerable Nonlocal Markets,but….

Figure 3 Frequency of Export Market Percentages

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Producer Service Businesses have Bifurcated Markets:They Tend to be Local or Export

Local FirmsLone Eagles & High Fliers

These data are indicative of market orientation of New Economy firms

Figure 4 Lone Eagles and High Fliers: Exports Five Years Ago and Exports Today*

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Export Percentage Five Years Ago

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The Traded-Dimension of Producer Service Businesses is Expanding Over Time

Localized firms mirror the trend for Lone Eagles/High Fliers

Externalization Processes in the Producer Services

• Transactions Cost Considerations: the “make or buy” decision

• Flexibility

• Risk Reduction

• Concentration on core skills

• New types of services

• Third-party objectivity

• New regulations

Externalization Pathways

• Service product innovation• Service process innovation• Increased complexity of the business

environment• Business process re-engineering to simplify

internal production structures• Likely when firms lack in-house expertise, when

firms are small single establishment, is sophisticated compared to competitors, and when services are dynamic, markets are uncertain, and when there is a mismatch between internal needs and the minimum scale of internal provision

Consequences of Externalization

• Shifts risks to suppliers

• May lead to reduced costs if suppliers are able to exploit scale economies

• May allow acquisition of expertise that cannot be provided internally due to lack of knowledge on the part of the purchaser

• ? Have these processes inflated the size of the service sector?

Possible Development Sequence

Table 3 Percentage of Establishments Considering Factors to be Highly Important as aMeans of Producing and Delivering Their Services (1)

Current (2)

Increases (3)

Decreases Face to face conversations at clients offices 40.8% 0.6% 2.0% Face to face conversations at establishment office 46.2% 2.0% 2.7% Telephone Conversations 47.1% 2.6% 0.7% Video Conferencing 0.0% 1.1% 0.5% Computer File Transfer - via modem direct 11.7% 14.3% 0.4% - via E mail, internet 6.8% 9.9% Zero via LAN 2.6% 3.2% Zero via WAN 0.8% 1.4% Zero via Mail/Courier 10.5% 11.7% 0.4% Written/Graphical Documents - face to face @ client 36.1% 1.2% 1.0% - face to face @ estab. 28.3% 0.5% 1.6% - mail/courier 39.1% 1.7% 0.7% - Fax 39.4% 24.2% Zero Other: Satellite Uplinks 0.6% 1.1% Zero Other 3.0% 1.1% Zero 76.4% 10% Number of highly important cites/business 3.13

Source: (Beyers 2000)

Face to Face Communication Is Key and is Not Diminishing in Its Importance

Recognition of Producer Services as a Part of the Economic Base

• Historic metro concentration

• Recent rural deconcentration• Role in “Edge Cities”• The “New Economy.”• --Producer Services as a progenitor to the New Economy:

–now multimedia, online retail, .com,–.org, .edu; telemedicine, teleservices, tele?; content providers; media conduits; delivery agents, etc.

The Productivity Debate

• The presumed slow growth of productivity in services compared to goods production

• Difficulties in measuring services productivity – Output per unit of input. But what is the Output? Take a college professor as an example. What are the inputs in higher education?

• Routine services vs. complex services

Constraints on Productivity

• Personal (human) labor is necessary• The co-presence need for seller and

buyers for many services (haircuts)• Proximity requirements may grant

monopolistic power to sellers, restraining productivity

• Opacity in markets (buyer not knowledgeable about service)

• Often a relational matter between buyer and seller (design services)

Impact of IT on Services Productivity

• Falling costs of IT equipment & software

• Growing real power of machines and networks

• Changing capabilities, that in many cases have allowed innovations in services

• Integration of service providers in networks, including the rise of the Internet as a medium for services transactions

Labor Markets in the Service Economy

• The shifting level of jobs – industry & occupation again

• Labor intensity in services compared to goods production

• Income distribution of service work:

Contingent laborVs.Professional – Table 8.2& Figure 8.12

Labor Markets in the Service Economy, continued

• Gender composition of service employment – Table 8.5, and the rising female labor force participation rate (Figure 8.15 & Figure 8.16)

• Income distribution in services employment vs. goods production (Figure 8.13) but the overall rising income inequality in the U.S. (Figure 8.14)

• Low rates of unionization in services, contributing to low incomes in some sectors

Gender Composition of Employment – female share of jobs

PinkCollarJobs –Defined byOccupationNot byindustry

Education Levels & Income

TendencyFor CollegeEducatedLabor To work In the ServiceEconomy

Education and Unemployment