Income Is Driven by Retail Trade

FIGURE 1.12 The Inverse Relationship between Low-Skill Services and Per Capita Income Is Driven by Retail Trade

Share of services employment in selected subsectors, by subsector group and country income level

(% ) services employment Share of

45 40 35 30 25 20 15 10 5 0 Retail Administrative and supportOther social, community,and personal services Arts, entertainment, and recreationTransportationAccommodation and food Wholesale Information and communicationtechnology Professional, scientific,and technical Finance Education Health Low-skill domestic Low-skill tradable Global innovators Skill-intensive social

Low income Lower middle income Upper middle income High income

Source: Calculations based on International Labour Organization (ILO) and World Development Indicators database. Note: Data from 104 countries are for the most recent available year (between 2011 and 2019). Low-income, lower-middle-income, and upper-middle-income countries follow World Bank classifications by 1994 income level. “High-income countries” are those whose gross national income per capita was at least US$8,955 in 1994. ICT = information and communication technology.

These patterns of employment expansion are consistent with the two waves of services sector output growth (as identified in Eichengreen and Gupta 2011) based on a large cross-section of low-, middle-, and high-income countries between 1950 and 2005. That much of the services sector’s increased share of employment among LMICs between 1991 and 2018 is attributable to low-skill services conforms to the first wave, consisting primarily of traditional services as a country moves from “low” toward “middle” income status.

The second wave consists of modern, knowledge-intensive services (in finance, communication, and business) as a country moves from “middle” toward “high” income status. This wave started at lower levels of per capita income after 1990 than in the preceding four decades.29 Across LMICs, it is reflected in the increasing share of global innovator services in total employment—almost doubling between 1991 and 2018 on average, albeit from a low base.

Employment expansion in the services sector across LMICs has therefore been concentrated in services subsectors that are intensive in the use of low-skilled labor. This has important implications for economic inclusion because cross-country evidence