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April 1983, Vol. 106, No. 4

The service-producing sector:
some common perceptions reviewed

Ronald E. Kutscher and Jerome A. Mark

Over the past three decades, the rapid growth of the economy's service sector and the increasing interest in the sector on the part of both scholars and policymakers have helped give currency to three perceptions about service industries. The perceptions are that (1) the service sector is composed entirely of industries that have very low rates of productivity growth; (2) service industries are highly labor intensive and low in capital intensity; and (3) shifts in employment to the service-producing sector have been a major reason for the slowdown in productivity growth over the past 10 to 15 years. This article examines these perceptions in the light of available data.

The service sector defined. The broadest definition of the service sector encompasses all industries except those in the goods-producing sector—agriculture, mining, construction, and manufacturing. Under this definition, services include transportation, communication, public utilities, wholesale and retail trade, finance, insurance, real estate, other personal and business services, and government. One variation on this definition of the service sector (or service-producing sector, as it is frequently called) excludes government activities at all levels. A third definition of the service sector is still narrower, including only private personal and business services and excluding transportation, communication, wholesale and retail trade, finance, insurance, and real estate. All three definitions will be referenced in the following discussion.

Growth rates vary widely by industry. The first apparently generally held perception of the service sector is that it consists entirely of industries with low growth in productivity. Comparison of growth rates for output and employment by industry over the last two decades might seem to lend support for this belief, for the data show that the widely discussed growth in services in the U.S. economy has been more pronounced from an employment perspective than from the output view.

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