Lower in Services Than in Manufacturing

TABLE 1.2 The Scope for Scale, Innovation, Spillovers, and Low-Skill Jobs Has Been Lower in Services Than in Manufacturing

Sectoral comparison of trade intensity, R&D intensity, capital intensity, intersectoral linkages, and low skill intensity in the United States and EU-15, circa 2015

Sector Share of value added that is exporteda (US 2015, %) Share of offshorable jobsb (US, %) R&D intensityc (EU-15 2017, share of value added, %) Capital stock per workerd (EU-15 2017, constant 2015 US$, thousands) Share of sales to other sectorse (EU-15 2015, %) Share of low-skilled workers in total sector employmentf (US 2018, %)

Agriculture Manufacturing Services 24.02 35.40 7.04

n.a. 32.60 29.20 0.43 7.20 0.85 505.3 360.6 207.5g 58.86 49.20 37.66 91.81 70.58 51.11

Sources: Blinder and Krueger 2013; OECD’s TiVA, R&D Sources and Methods, and STAN databases; US Department of Labor’s O*NET database. Note: Sectors are defined by the three broad sectors in the International Standard Industrial Classification of All Economic Activities (ISIC) Rev. 4. EU-15 comprises the 15 pre-2004 European Union member states: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom (which has since exited the EU). OECD = Organisation for Economic Co-operation and Development; R&D = research and development; n.a. = not applicable. a. The share of value added that is exported—based on the OECD’s Trade in Value-Added (TiVA) database—indicates a sector’s trade intensity and therefore its potential to access larger markets. b. A sector’s percentage of offshorable jobs indicates its potential to achieve scale by reducing the need for physical proximity between consumers and producers. It is measured here by survey questions in Blinder and Krueger (2013) that assess the extent to which worker tasks (a) involve face-to-face contact with people other than coworkers; (b) can be done without being physically present; and (c) will experience a decline in quality if they can be delivered remotely. c. R&D intensity—the share of businesses’ R&D expenditure in value added, taken from the OECD’s R&D Sources and Methods database—proxies the sector’s scope for innovation. d. Capital stock per worker—from the OECD’s STructural ANalysis (STAN) database—measures a sector’s “capital intensity,” a proxy for contributing to scale economies and innovation by leveraging labor’s contributions. e. The share of sales to other sectors in a sector’s output—taken from the OECD’s STAN database—indicates the extent of its linkages within the economy and therefore its scope for positive spillovers. f. The share of low-skilled workers in a sector’s employment—measured by the share of workers in manual-task-intensive occupations among 23 major occupational groups in the US Department of Labor’s Occupational Information Network (O*NET) database—reflects its skill intensity and hence its job creation potential for low-skilled or unskilled workers. The occupations identified as being manual-labor-intensive include community and social services; health care support; protective services; food preparation and serving; buildings and grounds cleaning; personal care; sales-related occupations; farming-related occupations; construction and extraction; installation, maintenance, and repair; production; transportation; and material moving. g. Capital stock per worker in the services sector excludes the real estate subsector because the value of the buildings greatly skews the overall average.

That almost one-third of jobs in the services sector are offshorable shows that the diffusion of ICT has allowed firms to disentangle service delivery from consumption and to exploit labor cost differences between higher-income and lower-income countries (Blinder 2009). That the manufacturing sector has a similar share of offshorable jobs might reflect the substantial offshoring that had already taken place for manufacturing jobs in the United States by 2015, but not for services jobs.

The Services Sector Is Not Monolithic

In the literature on the subject so far, economists have treated the services sector as a black box, much as they long treated technology. They often see services as a residual after accounting for agricultural and industrial activity. Sometimes, services are also seen as a composite category that is diverse, yet homogenous enough for economic analysis. The resulting paucity of or imprecision in data collection has limited empirical analysis of the services sector (as further discussed in the “Spotlight” after chapter 2).

To the contrary, the services sector constitutes a highly heterogeneous category of economic activity with no uniform definition. Under the United Nations (UN) International Standard Industrial Classification of All Economic Activities (ISIC), the broad categories of services include, among others, wholesale and retail trade; accommodation and food; transportation, storage, and warehousing; information and communication technology (ICT) services; financial services; real estate; professional, scientific, and technical services; public administration and defense; education and research; health services; arts, entertainment, and recreational services; administrative and support services; and other social, community, and personal services (UN 1993; also see annex 1A). Mining; utilities such as electricity, gas, and water; and construction are typically classified within “industry,” together with manufacturing.23

A Typology for the Services Sector

Unsurprisingly, therefore, the services sector is not monolithic, and its subsectors vary in the extent to which they combine the dimensions of scale, innovation, spillovers, and jobs for low-skilled labor. This space of intersecting trade intensity, offshorability, R&D intensity, capital intensity, linkages, and low skill intensity exhibits great heterogeneity and thus the potential for dynamic gains across services. It is not that any single subsector embodies all six dimensions; they combine varying degrees of different dimensions— which is why it is important to look at services in more disaggregated terms.

Services Subsectors: The Four Categories On the basis of data from the EU-15 and the United States, 12 services subsectors (by ISIC Revision [Rev.] 4 one-digit classification) can be grouped into four categories based on the clustering of the six pro-development characteristics defined earlier (table 1.3). Within each characteristic, the subsectors are also grouped based on the