Is the rapid growth of the service sector problematic?

March 08, 2013|By Alana Semuels
  • A pedestrian walks by a "now hiring" sign in the window of a Chase bank in San Rafael.
A pedestrian walks by a "now hiring" sign in the window of a Chase… (Justin Sullivan / Getty…)

This post has been corrected. See the note at the bottom for details.

NEW YORK -- The nation’s job numbers for February were encouraging, with employers adding 236,000 positions over the month, far exceeding analysts’ expectations.

But break down the job numbers by sector, and a trend emerges – it’s the service sector that is leading the recovery. Employers in the service sector have added 179,000 jobs over the last month, while manufacturing added just 14,000 and construction just 48,000.

This isn’t surprising to economists – the United States has long been shifting to a service economy as manufacturing jobs are automated and go overseas, and mining becomes less labor intensive. But it brings to mind jobs at places such as McDonald's and Wal-Mart, where workers are protesting the low wages and poor conditions in some service jobs. A study last year by the National Employment Law Project found that 43% of the jobs created during the recovery were in low-wage service industries including retail, food services and employment services.

So is it a problem for the U.S. economy and the recovery in general that the service sector is leading the recovery?

Perhaps surprisingly, economists say no. It may actually be a good thing.

For one thing, growth in services means that households are spending money again, a positive sign since consumer spending drives the economy.

“It’s a sign of health,” said Michael Gapen, senior U.S. economist at Barclays. “Those tend to be jobs that are based on strengths of household balance sheets and what consumers are buying.”

Consumers aren’t just going to Wal-Mart and McDonald's, he said, they’re also buying cars, stocks and healthcare. Professional and business services added 73,000 jobs over the month; healthcare added 32,000, retail added 24,000.

Many of the service sector jobs being created are actually high-skilled and well-paying, said Francisco J. Buera, a professor at UCLA’s department of economics, who published a paper last year, “The Rise of the Service Economy," arguing that low-skilled service jobs have been shrinking while high-skilled service jobs have been growing over the last decades. Health care and financial services jobs have grown, he said, and even jobs in places such as restaurants have gotten more specialized – think chefs rather than cashiers.  

“Over time, as we are getting richer, the type of goods we have been consuming are produced with high-skilled workers,” he said.

Just as manufacturing has become more specialized, requiring engineers rather than just bodies, so too will the service sector, he said. This theory makes a case for education, even for those workers planning to work in retail or food services. 

February's job numbers play that out: Unemployment for people with less than a high school degree was at 11.2%, compared to unemployment of 3.8% for people with a bachelor's degree or higher.

For the record, 5:14 pm, March 8: A previous version of this post said the results were for the year, instead of the month.


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