Herbert Runyon

English

Research Papers in Economics

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May 28,1982 
Strength in Services 
Analysts looking for a bright spot in theother-
wise somber labor-market picture may find it 
in the services industry. Since mid-1981, 
employment has declined (sometimes 
sharply) in manufacturing, construction, and 
other industries, but it has continued to 
expand in firms that supply business, health, 
personal, entertainment and other services. 
The services industry thus may take on part of 
the employment-stabilizing role that govern-
ment agencies played in earlier recessions-
but not in this one-especially since services 
account for one-fourth of all the workers on 
private non-farm payrolls. 
These trends may be difficult to discern 
because of  the different mean i  ngs given to the 
term "services" in labor-market discussions. 
Here we are referring to the industry which 
produces business, health and other obvious 
services. By some definitions, however, 
"services" encompasses a broader range of 
activities (such as trade and transportation) 
which produce various intangible items 
rather than tangible goods. Statistics on the 
broad services sector tell us little, however, 
because of  the substantial differences among 
the industries included in this definition. 
Separately, but somewhat misleading in this 
context, analysts use the term "service 
worker" to cover certain employees who do 
not fit into the normal blue-collar or white-
collar occupational categories. 
Rapid growth of services 
The recent strong performance of  the services 
industry is not surprising, consideringthatthe 
industry has grown more rapidly than any 
other throughout the past quarter-century. 
However, the various parts of this industry 
have shown a great diversity in growth 
patterns. In the 1972-80 period, for example, 
health and business services grew more 
rapidly than the industry in general, and 
accounted for almost half of the industry's 
total employment at the end of that span. In 
the health sector, employment in doctors' 
and dentists' offices almost doubled-rising 
much more rapidly than in the larger hospital 
sector. In business services, meanwhile, 
employment more than doubled in data-
processing and employment-agency 
services. Employment also increased very 
rapidly in several smaller sectbrs, such as 
legal services and social services; but at the 
other  extreme, employment grew very slowly 
in personal services (barber, beauty, and shoe-
repair shops) and motion-picture theaters. 
The services industry showed several unique 
structural characteristics during the pas!' 
decade. According to Michael Urquhart, 
writing in the October 1981  issue of the 
Monthly Labor Review, women accounted 
for two-thirds of the 1972-80 increase in 
employment in this industry, primarily 
in health, business, and social services. 
As a result, women now account for 60 per-
cent of total employment in the services 
industry. Also, these women as a group 
generally are older than those working 
in other industries. 
As a related matter, almost one-fifth of all 
workers in the service industry are part-timers 
-indeed, this industry accounts for more 
than one-third of all part-time workers. Thus, 
the average workweek in services, at less than 
33 hours last month, was at least six hours less 
than in manufacturing (although three hours 
longer than in retail trade). 
Professional and technical workers tend to 
dominate the services industry, accounting 
for 39 percent of  employment in that industry 
compared with a 21-percent share of  the total 
private workforce. (The higher educational 
requirements in this area may help account 
for the older age of  the women working in 
services.) Paradoxically, in 1980 professional 
and technical workers far outnumbered the 
number of "service" workers in the services 
industry. Health services, for example, 
showed a heavy representation of physicians, Opinions expressed in thi:; nevvsietter do not 
neccssari!v reflect the- vievvs of the managenlent 
of the redera! Reserve Bank of San  Francisco, 
or of the Board of Covernors of the Federa! 
Reserve Sy:;tenl. 
dentists, nurses, managers, and other protes-
sionals, along with such service-type workers 
as hospital aides and practical nurses. 
Immune to recession? 
The recent strength in services employment 
could have been expected, since this industry 
has been relatively immune to all the reces-
sions of the past several decades. Employ-
mentin services increased in each of the four 
contractions since 1960, although in each 
case at a slower rate than in the preceding 
expansion (see table). Employment trends in 
trade, transportation and other parts of the 
broader "service" sector paralleled the trends 
in the services industry, butto a lesser degree 
-and as expected, employment in goods-
producing industries dropped sharply in 
every business contraction. 
During the recession which began last July, 
services employment has risen at a 2.2-
percent annual rate-an increase of 31 0,000 
jobs (see chart). But during this same July-' 
April period, only retail trade and finance 
showed increases among other industries in 
the broader "service" sector-and indeed, 
total employment in this sector dropped 
Expansion or Contraction  Services 
February 1961-December 1969  5.9 
December 1969-November 1970  2.4 
November 1970-November 1973  4.1 
November 1973-March 1975  3.6 
March 1975-January 1980  7.1 
January 1980-July 1980  3.2 
Ju Iy 1980-Ju  Iy 1981  3.9 
July 1981-Apri11982  2.2 
slightly for the first time in any recession 
of the past two decades. Employment in the 
goods-producing sector meanwhile dropped 
sharply, for an overall loss of 1.5 million jobs. 
Unemployment has increased in the services 
industry as elsewhere during this recession. 
The jobless rate in the combined services and 
finance industry has risen almost a full per-
centage point since last summer's peak, to 7.0 
percent in April. But in contrast, the jobless 
rate for a  II non-farm workers reached 9.9 
percent in Apri I-and  the rate reached 11 .3 
percent in manufacturing and 19.4 percent in 
construction. 
Employment and investment 
The strength in services employment, how-
ever, has gone hand-in-hand with a flat level 
of investment in that sector over the past 
decade.  'Previously, in the 1947-73 period, 
investment increased much  more rapidly in 
that area than in non-farm business generally. 
But between 1973 and 1980, real investment 
in the services industry grew at only a 
0.2-percent rate annually, compared with a 
2.6-percent rate of investment growth for all 
non-farm business. 
Annual Employment Change (%) 
Other "Services"*  Goods Producing 
3.9  2.4 
1.7  -6.0 
3.3  3.6 
1.5  -8.4 
4.3  4.8 
0.6  10.1 
2.9  3.1 
-0.1  -5.8 
*Other "services" includes transportation, public utilities, wholesale and retail trade, and finance-insurance-real 
estate. Source: Bureau of Labor Statistics. 
2 Altogether, the continued expansion of an 
industry which accounts for one-fourth of all 
private non-farm employment helps to impart 
a certain amount of stability to the labor-
market situation. At the same time, the flat 
level of capital spending by this fast-growing 
industry suggests a declining capital-labor 
ratio, which in turn implies minimal gains in 
productivity. Indeed, productivity growth has 
-1.0  -0.5 
Total non-farm 
Construction 
Manufacturing 
lagged recently in services; real output per 
hour declined at a 3.6-percent annual rate in 
services over the 1972-79 period, compared 
with a G)-percent average rate of  decline in 
all private industry. The lagging productivity 
figures thus indicate the presence of con-
tinued cost pressures in an increasingly 
important part of the national economy. 
o  0.5 
Employment  Change 
July 1981-April 1982 
(millions) 
Trade 
Services 
Herbert Runyon 
A mathematical appendix is available to accompany the article "Are Interest Rates Comparable?", which was 
published in the April 23 Weekly Letter. Interested readers can obtain copies of  that mathematical appendix by 
writing the  Public  Information  Department,  Federal  Reserve  Bank  of San  Francisco,  P.O.  Box  7702,  San 
Francisco, CA 94120. Phone (415) 544-2184. 
3 BANKING DATA-TWELFTH FEDERAL RESERVE DISTRICT 
(Dollar amounts in millions) 
Selected Assets and Liabilities 
Large Commercial Banks 
Loans (gross, adjusted) and investments* 
Loans (gross, adjusted) - total # 
Commercial and industrial 
Real estate 
Loans to individuals 
Securities loans 
U.s. Treasury securities* 
Other securities* 
Demand deposits - total# 
Demand deposits - adjusted 
Savings deposits - total 
Time deposits - total# 
Individuals, part. & corp. 
(Large negotiable CD's) 
Amount 
Outstanding 
5/12/82 
.159,354 
138,465 
43,301 
57,166 
23,329 
2,048 
6,049 
14,840 
38,385 
26,597 
30,650 
93,015 
83,295 
34,124 
Change 
from 
5/5/82 
1- 308 
1- 333 
149 
14 
- 91 
- 74 
20 
5 
-1,503 
- 106 
- 198 
531 
342 
204 
-
-
-
-
Weekly Averages  Weekended  Weekended 
of Daily Figures 
Member Bank Reserve Position 
Excess Reserves (+ )/Deficiency (-) 
Borrowings 
Net free reserves (  + )/Net borrowed(  - ) 
* Excludes trading account securities. 
#  Includes items not shown separately. 
5/12/82  5/5/82 
104  55 
20  17 
84  38 
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Change from 
year ago 
Dollar  Percent 
10,304  6.9 
11,543  9.1 
5,743  15.3 
4,946  9.5 
399  1.7 
627  44.1 
425  i- 6.6 
793  i- 5.1 
2,139  i- 5.3 
2,075  i- 7.2 
380  1.3 
13,574  17.1 
13,418  19.2 
2,340  7.4 
Comparable 
year-ago period 
55 
241 
- 186 
Editorial comments may be addressed to the editor (William Burke) or to the author ....  Free copies of this 
and other Federal Reserve publications can be obtained by calling or writing the Public Information Section, 
Federal Reserve Bank of San Francisco, P.O. Box 7702, San Francisco 94120. Phone (415) 544-2184. 

Strength in services

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Strength in services

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