Discussion Paper Contributions to this section are welcomed; they should conform to International Journal of Hospitality Management style (see Notes for Contributors inside back cover) and be of not more than 1500 words in length. Discussion papers are not refereed and may be speculative, provocative or informative. The editors will welcome responses. Service industries: their importance in the economy Introduction Service industries’ account for over half of total output, nearly two-thirds of total employment and over two-fifths of ‘whole economy’ investment, yet the size and growing importance of the service sector is often not fully recognised. This article provides a description of, and some possible reasons for, the long-term growth in the service sector. A comparison is also drawn between U.K. and international experience over the last twenty years. Some problems in measuring service indus- try output are discussed in the Appendix. Overall trends Growth has been faster in the service sector than in the economy as a whole over the last twenty years, while in manufacturing it has been slower. Since 1973 these trends have been accentuated. Whereas manufacturing output has suffered an absolute decline of around one-fifth, service output has con- tinued to grow, although at a reduced rate. As early as the 1920s employment in services already exceeded employment in manufacturing. Figure 1 shows that since the mid-1950s the share of service employment in total employment has been rising continuously and the share of manufacturing has been falling.’ (In absolute terms manufacturing employment has in fact been falling more or less continuously since 1966.) Table 2 shows that in the ten years to mid-1983 the number of employees in employment in the service sector went up by over a million. Allowing for the increase in self-employ- ment the increase in total employment in services was over 15 million. This compares with substantial falls in other sectors. Trends within services Within the service sector there has been consider- able variation in employment trends (see Table 3). The fastest rates of growth between 1973 and 1979 (the last two cyclical peaks in total output) were in financial services (2.9% per annum), professional and scientific services (2.5%) and miscellaneous services (1.9%). Many new activities have been classified (in the 1968 SIC) under the ‘miscellane- ous’ and ‘other business services’ headings; over a quarter of the total growth in service jobs over this period was in the miscellaneous category, and a further one-tenth in other business services, which includes computer services. In contrast employ- ment in transport and communications hardly changed. Between 1979 and 1983 total employment in services (including self-employment) may have grown by around 245,000, with continued strong expansion in the financial service industries. Table 4 and Fig. 2 show trends in private and public service employment over the last twenty years. In the 1960s and early 1970s employment in public services increased much more rapidly than in private sector services. (Over this period the national health service doubled in size, while local authority manpower increased by two-thirds.) This pattern was reversed in the late 1970s with an acceleration in the growth of jobs in private ser- vices, but a levelling-off in public service employ- ment against a background of increasing govern- ment concern over the growth of public expendi- ture. Since 1979 private sector service employment has continued to grow strongly despite difficult economic conditions. Employment in public sector services has been reined back in line with the Government’s policy of streamlining the civil ser- vice and encouraging greater efficiency in public corporations and local authorities. Over the last twenty years trade in services has contributed a consistent and growing surplus to the invisibles balance in the current account of the Int. J. Hospitality Management Vol. 5 No. 2 pp. 87-92 1986 Printed in Great Britain 02784319/86 $3.00 + 0.00 Pergamon Journals Ltd 87
Transcript
Discussion Paper Contributions to this section are welcomed; they should conform to International Journal of Hospitality Management style (see Notes for Contributors inside back cover) and be of not more than 1500 words in length. Discussion papers are not refereed and may be speculative, provocative or informative. The editors will welcome responses.
Service industries: their importance in the economy
Introduction
Service industries’ account for over half of total output, nearly two-thirds of total employment and over two-fifths of ‘whole economy’ investment, yet the size and growing importance of the service sector is often not fully recognised. This article provides a description of, and some possible reasons for, the long-term growth in the service sector. A comparison is also drawn between U.K. and international experience over the last twenty years. Some problems in measuring service indus- try output are discussed in the Appendix.
Overall trends
Growth has been faster in the service sector than in the economy as a whole over the last twenty years, while in manufacturing it has been slower. Since 1973 these trends have been accentuated. Whereas manufacturing output has suffered an absolute decline of around one-fifth, service output has con- tinued to grow, although at a reduced rate.
As early as the 1920s employment in services already exceeded employment in manufacturing. Figure 1 shows that since the mid-1950s the share of service employment in total employment has been rising continuously and the share of manufacturing has been falling.’ (In absolute terms manufacturing employment has in fact been falling more or less continuously since 1966.) Table 2 shows that in the ten years to mid-1983 the number of employees in employment in the service sector went up by over a million. Allowing for the increase in self-employ- ment the increase in total employment in services was over 15 million. This compares with substantial falls in other sectors.
Trends within services
Within the service sector there has been consider- able variation in employment trends (see Table 3). The fastest rates of growth between 1973 and 1979 (the last two cyclical peaks in total output) were in financial services (2.9% per annum), professional and scientific services (2.5%) and miscellaneous services (1.9%). Many new activities have been classified (in the 1968 SIC) under the ‘miscellane- ous’ and ‘other business services’ headings; over a quarter of the total growth in service jobs over this period was in the miscellaneous category, and a further one-tenth in other business services, which includes computer services. In contrast employ- ment in transport and communications hardly changed. Between 1979 and 1983 total employment in services (including self-employment) may have grown by around 245,000, with continued strong expansion in the financial service industries.
Table 4 and Fig. 2 show trends in private and public service employment over the last twenty years.
In the 1960s and early 1970s employment in public services increased much more rapidly than in private sector services. (Over this period the national health service doubled in size, while local authority manpower increased by two-thirds.) This pattern was reversed in the late 1970s with an acceleration in the growth of jobs in private ser- vices, but a levelling-off in public service employ- ment against a background of increasing govern- ment concern over the growth of public expendi- ture. Since 1979 private sector service employment has continued to grow strongly despite difficult economic conditions. Employment in public sector services has been reined back in line with the Government’s policy of streamlining the civil ser- vice and encouraging greater efficiency in public corporations and local authorities.
Over the last twenty years trade in services has contributed a consistent and growing surplus to the invisibles balance in the current account of the
Int. J. Hospitality Management Vol. 5 No. 2 pp. 87-92 1986 Printed in Great Britain
02784319/86 $3.00 + 0.00 Pergamon Journals Ltd
87
88 Discussion Paper
70--
60-
i 50- s __--
_-
f 407 --W_ d f 30-
B
__ ManufacturL
z 20- Construction, mming
and utilltm _---_- IO -
Agrwlture, forestry and fishing __-__-
0 I I I I I I
1951 1956 1961 I966 1971 I976 1961
balance of payments. In particular there has been an increasingly large surplus on trade in financial and other services, such as insurance, banking, and telecommunications (see Fig. 3).
Total service exports (credits) in 1982 amounted to over 2174 billion, around half the value of exports of manufactures.
Services and investment
fig. 7. Shares of total civilian employment, GB, 1951- 1987.
Note: The figures for 1951 and 1956 are based on the 1948 Standard Industrial Classification (SIC). The other figures are based on the 1968 SIC.
Table 7. Trends in output, employmentandinvestment in services and manufacturing (X of whole economy totals)
Table 5 shows that services account for over two- fifths of total spending on fixed investment in the economy (after allowing for the leasing of capital goods by financial services to other industries). Well over half service sector investment is carried out by private services, and predominant among these are banking, finance, insurance, business and leasing services. Most of public sector service investment is in the ‘other services’ category, which includes capital spending by public administration, health and education services, and road construc- tion.
1960 1982
output Services 45 Manufacturing 48 6”:
Employment* Services 37 24 Manufacturing 36 25
Investment Services 37 45t Manufacturing 25 15t
* 1968 SIC. t Allowing for leasing from services to manufacturing.
Links with other sectors
In an advanced economy no single sector operates in isolation from other sectors. The fortunes of the manufacturing/tradeable goods sector and the ser- vices sector are obviously interlinked. For example, some services (such as financial, professional and scientific services) are essential for the success of
1 manufacturing, while many services use bute the products of manufacturing.
L or distri-
Table 2. Changes in employment*, GB
Employees (‘000s)
June June June 1973 1979 1983
Change 1973-83
% per GOk, annum
All industries and services 22,180 22,590 20,460 -1,720 -0.8 Agriculture,forestryandfishing 420 360 340 -80 -2.1 Mining and quarrying 360 350 310 -50 -1.5 Manufacturing 7,660 7,050 5,370 -2,290 -3.5 Construction 1,340 1,250 970 -370 -3.2 Gas, electricity and water 340 340 320 -20 -0.4 Services industries 12,060 13,240 13,150 + 1,090 -0.9
* (i) Figures are based on 1968 Standard Industrial Classification. (Figures on 1980 SIC basis are not yet available.)
(ii) The 1983 figures are the Department of Employment’s supplementary series which includes an allowance for the probable understatement of the level of employment, particularly in the service industries, in the basic series.
(iii) The 1983 figures do not reflect the final results of the 1981 Census of Employment.
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6
2 1961 1970 I975 1979 1963
Fig. 2. Employment in service industries by sector, U.K., mid year.
Source: Central Statistical Office.
Table 3. Growth of total service employment (employees and self-employed’, GB, ‘000s rounded)
June 1973
June 1979
Change2 1973-79
All services 13,200 14,350 +1,140 of which Transportand 1,580 1,590 +10
Professional and 3,360 3,830 +470 scientific services3
Miscellaneous 2,470 2,810 +340 services
Public 1,540 1,560 +20 administration4
‘All figures based on 1968 SIC; disaggregated figures on a 1980 SIC basis are not yet available. 2Rounded from difference in unrounded annual figures. 3 Includes health service. 4 Excludes armed forces.
Source: United Kingdom Balance of Payments. Central Statistical Office.
‘Input : output’ tables are a useful way of looking at how different sectors of the economy depend on each other. They give estimates of how the supply of each sector is distributed through the economy between firms in the same sector, other industrial sectors and final demand (consumers’ expenditure, public consumption, capital formation and exports). Partly because a vast amount of informa- tion is required to construct such tables, the most recent table covering the whole of the U.K. econ- omy relates to 1979. But even this dated informa- tion can still provide some useful insights into the interdependence of industrial sectors.
Table 6 shows that service industries tend to be rather more oriented to final demand than is manu- facturing. For example, about three-quarters of distributive trades output goes directly into satisfy- ing final demand. The table also shows that perhaps only about a fifth of service sector output is sold to manufacturing industry. Flows between industries appear to be less important in services than in manufacturing. Perhaps a quarter of manufactur- ing output is sold within the manufacturing sector whereas only about 15% of service output appears to stay in the same sector.
Reasons for growth
The continuing changes in the industrial structure of the economy, in particular the growing import- ance of services, reflect fundamental economic and social forces.
Table 4. Private and public sectors, total service employment, U.K. (incl. self-employed)
Fig. 4. Distribution of employees (averages 1960-67, 1974-81). Source: OECD Historical Statistics.
Real personal disposable income has more than doubled since the second world war. As real incomes rise people tend to spend a greater propor- tion of those incomes on personal, financial and leisure services. A good example here is the rapid growth of recreational services such as leisure centres and clubs. In addition, increasing real incomes in other countries have contributed to an increased foreign demand for U.K. services, for example airlines, hotels and restaurants. A gener- ally lower ‘income elasticity’ of demand for manu- factured goods than for services is also part of the reason for the relative decline in manufacturing. Another contributory factor is that manufacturing sells more of its output overseas (see Table 6) and is
therefore subject to a greater degree of inter- national competition than services.
There have also been changes in consumers’ tastes which have increased demand for services, for example the greater readiness to have bank accounts. Wider social and economic changes have also contributed to the growth of service industries. The spread of home ownership, for example, has increased demand for solicitors and estate agents. Demographic pressures help explain the growth of medical services. Shorter working hours tend to raise the demand for leisure industries, and so on.
On the supply side, changes in technology have
Table 5. Fixed investment by industry and sector’, 1982 (f million, rounded)
Private Public sector sector Total
AgricuIture,forestry,fishing 1,050 50 1,100 Energy and water supply 3,100 3,800 6,900 Manufacturing 1 5,000 200 5,200 Construction 400 0 400 Dwellings 3,850 2,200 6,100 Land and existing buildings 4,300 -4,300 2,150 Services 1 12,850 7,550 20,400
of which: Distributivetrades 3,700 0 3,700 Transport,communications 1,150 2,300 3,400 Banking,finance, etc. 7,000 400 7,400 Other services 1,050 4,900 5,900
Total 30,500 11,700 42,200
’ Figures based on classification by ownership, not use of capital asset. In 1982 financial service companies are estimated to have purchased around f22 billion of capital assets for subsequent leasing to industries, including over fl billion to manufacturing industry. ‘Public administration, health and education, personal services, roads. Source: 1983 National Income and Expenditure (The Blue Book).
Discussion Paper 91
played a large part in the growth of some services, the most obvious example being computer services.
Other countries
The experience of the U.K. has been fairly typical of that in other major OECD countries. The pro- portion of total output accounted for by services increased in the U.S.A., Japan, Germany, France, Italy and Canada over the last twenty years. This has been reflected in a growing share of services in total employment (see Fig. 4). Between 1973 and 1979 (the last two cyclical peaks in OECD GDP) manufacturing employment fell in Japan, Ger- many, France and the U.K. Since 1960 service sector employment has grown at a fairly consistent 23% per annum in the ‘major 7’ as a whole.
Within the growing service sector there has been a relative shift away from distribution, transport and communication and into the faster growing financial, business and personal services. This is illustrated in Table 7, which shows trends in employment within the service sector between 1971 and 1981.
Conclusions
There is no doubt that the service industries are of growing importance as a source of output, jobs, and investment.
The fortunes of services and the production industries are interlinked. But services tend to be rather more oriented towards final demand.
The growth in the demand for services as real incomes rise has been a consistent trend throughout the developed world.
Acknowledgement-This paper first appeared in Economic Progress Report, February 1985, and is reproduced with the permission of the Editor and H.M. Treasury.
Appendix 1. The measurement of service sector output
For some service industries good indicators of trends in output are available in the form of volume data (such as tonne-km for goods transport) many of which can be found in administrative or statistical publications. In others (such as retailing) it is possible to derive satisfactory estimates from turnover or gross margins. Where volume and/or price information of sufficient quality is not available, changes in a service industry’s contribu- tion to the output-based measure of gross domestic product, (GDP(O)), are assessed using the best available proxy. But these proxies do not always stand up very well as indicators of output in the industry. The most obvious example is the use of employment data for certain private sector business services {e.g. advertising) and personal services (amounting to some 6% of GDP). In this case changes in output per head, i.e. productivity, are missed.
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Table 7. Percentage point changes’ in shares of total service sector employment 19761987 flounder to nearest half percent)
Wholesaleand Transport & Financial Other’ retail trade communication business private Publicservices
Austria -2 -2 ill -14 14 Denmark -14 i-2 -24 +10 France I;1 -1 +tr +4f -2 West Germany -4 -2 0 +2 +4 Italy
’ Derives from time trends estimated by UN. 2 Personal services, recreation, etc. 3 Health services in the U.S.A. are mainly classified in the private sector. Source: UN Economic Bu/ieti~ for&rope, Vol. 35, No. 3.
Employment data are also used in GDP(O) calculations as the basic proxy for net output of the non-trading public sector, such as defence, the fire service, public administration. In these cases, even where sensible and unambiguous units of output can be defined, there is no means of placing market valuations on them and as a result no way of weighting them together. Direct measurement of output (and derivation of productivity) is therefore not feasible in this area.
Largely because the proxy measures are only available quarterly or annually, estimates of service sector output are not available monthly. Also the level of detail is limited compared with the monthly breakdown available for the pro- duction industries.
Notes
1. 1980 Standard Industrial Classification divisions 6 to 9: distribution, hotels and catering repairs; transport and com-
munications, banking, finance, insurance, business services and leasing; public administration; education; health, and other services.
2. Two points should be noted here in assessing the extent of the shift to service employment. Over four-fifths of the 41 million part-time workers in the economy work in services. Most of the growth in service sector employment since 1973 is accounted for by growth in part-time (principally female) employment. If employment was expressed in terms of ‘full- time equivalents’, growth in service employment would be rather less rapid, and the share of services in total employment somewhat reduced. However, the overall picture would not change much. A second point is that there may have been some tendency for jobs to move from the manufacturing to the service sector simply because firms have substituted ‘outside’ contract labour for ‘in-house’ work, with no basic change in the type of work performed. (Office cleaning is one example.)
