Producer services industries: why are they growing so rapidly?, (EXCERPT), Monthly Labor Review Online, December 1987

Producer services industries:
why are they growing so rapidly?

John Tschetter

Economists continue to search for the causes of the dramatic post-World War II growth in service-producing industries.¹ Some claim that the growth simply reflects changes in the way U.S. companies are doing business, according to the following argument:² To be competitive in domestic and international markets, manufacturing companies need to reduce their overhead costs. To do this, companies are transferring service-type activities formerly performed by in-house staff to firms which specialize in those activities. Persons subscribing to this hypothesis believe that these simple transfers of activities—called "unbundling'—account for a significant proportion of the output and employment growth in the service-producing industries, but contribute little to the total economy.

This article examines producer services industries, an important subset of the service-producing industries. We want to review several possible explanations for the growth of this important group of industries, particularly the unbundling hypothesis. Producer services include advertising, computer and data processing services, personnel supply services, management and business consulting services, protective and detective services, services to dwellings and other buildings, legal services, accounting and auditing services, and engineering and architectural services.³ In 1986, producer services industries employed about 6.8 million wage and salary workers, or 6.8 percent of nonagricultural workers.

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Footnotes

1 Recent BLS studies analyzing broad employment shifts include Michael Urquhart, "The employment shift to services: where did it come from," Monthly Labor Review, April 1984, pp. 15-22; and Ronald E. Kutscher and Valerie Personick, "Deindustrialization: the shift to services," Monthly Labor Review, June 1986, pp. 3-13. Recent studies on individual industries include Max Carey and Kim Hazelbaker, "Employment growth in the temporary help industry," Monthly Labor Review, April 1986, pp. 37-44; and Wayne Howe, "The business services industry sets pace in employment growth," Monthly Labor Review, April 1986, pp. 29-36.

Other recent articles includes Bobbie H. McCrackin, "Why are business and professional services growing so rapidly?" Economic Review (Federal Reserve Bank of Atlanta), August 1985, pp. 15-28; Lynn E. Browne, "High technology and business services," New England Economic Review, July/August 1983, pp. 5-17; and Lynn E. Browne, "Taking in each other's laundry—the service economy," New England Economic Review, July/August 1986, pp. 20-31.

2 See Garth Mangum, Donald Mayall, and Kristin Nelson, "The temporary help market," Industrial and Labor Relations Review, vol. 38, no. 4, pp. 599-611; Ronald C. Henson, "Coping with fluctuating work-force requirements," Employment Relations Today, Summer 1985, pp. 149-56; and Michael J. Piore, "Perspectives on Labor Market Flexibility," Industrial Relations, vol. 25, no. 2, pp. 146-66.

No economist is directly identified with the unbundling explanation, although many allude to the economic, accounting, and organizational theories that underlie the thesis.

3 In this article, producer services includes business services (SIC 73), legal services (SIC 81), and miscellaneous professional services (SIC 89). This group of industries—along with other groups—have been singled out in studies such as Harry I. Greenfield, Manpower and the Growth of Producer Services (New York, Columbia University Press, 1966); and Thomas M. Stanbeck, Jr., Understanding the Service Economy (Baltimore, Johns Hopkins University Press, 1979).

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