Service sector

In the decades after World War II, the service sector emerged as the largest segment of the American economy, making the United States the world’s first “service economy” and encompassing a wide range of economic activities that produce services rather than tangible products.

Industries that comprise the service sector include wholesale and retail trade, transportation, finance, communications, insurance, real estate, various professional services (including health care and legal services), personal services (barber and beauty shops, for example), and public services (government, including education).

The growing dominance of the American service sector in the 20th century coincided with the long-term decline of employment in agriculture and, subsequently, in manufacturing. In the late 19th century, the proportion of the American labor force engaged in agriculture began to decline and more Americans found employment in the manufacturing and service sectors. Manufacturing became the largest sector of employment in the early decades of the 20th century. By the 1940s, however, the service and manufacturing sectors employed roughly equal shares of the labor force. During the 1950s, the service sector surpassed manufacturing to become the largest sector of employment in the United States, accounting for the vast majority of newly created jobs. Thirteen million new jobs were created in the service sector between 1947 and 1965. In contrast, manufacturing accounted for only 4 million new jobs and agriculture suffered a loss of 3 million jobs during the same period. Thus, the service sector’s share of the American labor force continually expanded. Between 1947 and 1965, the share of the American labor force employed in the service sector increased from 46 percent to 55 percent. For most of this period, wholesale and retail trade constituted the largest area of employment in the service sector. In the late 1960s, however, the rapid growth of employment in the public sector made government the largest employer in the service sector. In addition, increased demands for professional services—such as communications, legal services, and ADVERTISING—contributed greatly to the growth of the service sector in the 1950s and 1960s.

In postwar America, the service sector’s share of the gross national product (GNP) changed very little, even as its share of employment increased rapidly. This disparity derived, in part, from the nature of employment in the service sector; jobs in the service sector tended to be laborintensive positions in which output per worker increased negligibly compared to productivity gains in other sectors of the economy. Throughout the 20th century, the agricultural and manufacturing sectors increased their output levels while decreasing their need for manpower. The introduction of automation and other innovations in manufacturing, for example, dramatically increased the rate of productivity per worker and, in most cases, decreased the need for employees. In contrast, jobs in the service sector—whether in sales, MEDICINE, EDUCATION, or janitorial services—typically allowed for comparatively modest increases in worker productivity. This economic pattern accounts for the fact that even in the 1950s, when the United States was the leading manufacturing nation in the world, the service sector actually provided more jobs than did American manufacturing.

Employment patterns in the service sector that emerged after World War II differed markedly from other sectors of the American economy. Women, part-time employees, and older workers were heavily represented in the service sector. By 1960, almost half of all service sector employees were women and 71 percent of all female wage earners were employed in the service sector. Over one-fourth of all service sector workers were employed only part-time. In addition, the service sector held a high concentration of older workers; nearly 60 percent of American workers over the age of 65 were employed in the service sector (although their share of all service sector jobs was only 5 percent). The strong representation of women, parttime workers, and older Americans in the service sector contrasted sharply with their weak presence in industry. When American manufacturing was booming in the 1950s, industrial workers—mainly represented by unions— enjoyed good wages and benefits. In contrast, less than 10 percent of service sector employees belonged to unions, which could give them the instrumental means to negotiate better wages and conditions of employment. The fact that the vast majority of service sector workers were overlooked by the uNIoN MovEMENT contributed to a high concentration of jobs that offered lower pay scales and fewer benefits compared to traditional blue-collar manufacturing jobs. By the late 1960s, the growing dominance of the service sector raised concerns among many Americans about the implications of such employment for the future standard of living for Americans.

Further reading: Victor R. Fuchs, The Service Economy (New York: Columbia University Press, 1968); Frank Levy, Dollars and Dreams: The Changing American Income Distribution (New York: W. W. Norton, 1987).

—Susan Allyn Johnson