The phrase “We’re becoming a service economy” is used frequently today. But many people are worried when they hear these words because they think a service economy implies low-paying jobs and a lower standard of living.
Is there something special about a manufacturing economy and problematic about a service economy that makes countries and regions built around services less prosperous? Let’s see.
First, here’s some background. The claim “We’re becoming a service economy” is derived by looking at employment trends. After World War II, 60 percent of workers nationwide were in the service sector; today it’s up to 83 percent. Manufacturing employment in the country peaked 25 years ago.
In North Carolina, the employment shift to services has been even more dramatic. When the WWII ended, only 11 percent of employees were service workers, and today the rate is almost 80 percent.
With all the movement of jobs to the service sector, most people think factories are producing less. This is wrong! North Carolina’s factories are manufacturing more than 70 percent more today than a quarter century ago, and the same is true for the nation. Modern equipment and technology are allowing factories to make more with fewer workers.
In fact, manufacturing is moving in the same direction as agriculture. Farm output today is 150 percent higher than after World War II, but using only 16 percent of the workforce.
So we shouldn’t think that becoming a service economy in jobs means we’re manufacturing less. And it’s also not the case that all service jobs are low-paying. The fastest growing job sector in recent decades has been professional service jobs, including positions in health care, management, education, and technical fields.
Also, 60 percent of the service jobs added in North Carolina in the past decade have paid the same or more than the manufacturing jobs lost in the state.
However, even with these positive aspects to a service economy, there’s still an argument made by some that a country or region can’t prosper by trading services. This point of view says prosperity comes only from growing or manufacturing something and selling it to someone outside the region or country.
Although at one time this viewpoint was accurate, it is no more. For example, in international trade, services can be exported to consumers in other countries just like manufactured products. When U.S. legal firms, architectural companies, or computer experts do business in foreign countries, the transaction is an export of services.
Or, when foreigners watch U.S.-made firms, and when foreign families visit the United States as tourists, these activities also represent an export of services. In fact, the U.S. perennially runs an international trade surplus in services, with last year’s positive balance being $60 billion.
States and regions can also earn money by exporting services. Regional hospitals and medical facilities that attract patients from other areas are engaged in an “export” of medical services. Likewise, universities, colleges, and technical schools export educational services and bring money to the region when students from outside the area attend the schools.
Similarly, the movement of retirees or second-home owners into a county brings a stream of future income for the locality. Think of this as “exporting” the natural beauty and other amenities of an area to outside buyers.
Technological transformations and shifts in spending patterns are causing us to increase the proportion of our income earned from services. This should not be feared, any more than the change from an agricultural to manufacturing economy should have been feared over 100 years ago. Rather than fighting the change, states, localities, and individuals must learn how to prosper from the emerging service economy.