ODE outlook on decline of service economies

Thomas Meehan
Business Correspondent

The United States economy has undergone a tectonic shift since the early 20th century.

The manufacturing sector, once the economic foundation of many areas of the country, is dwindling, while the service sector is flourishing. According to the U.S. Department of Labor, in 1920, manufacturing jobs comprised 34.6 percent of all jobs, while that number was 37.7 percent for service jobs. Those numbers are 12.7 percent and 80.1 percent today.

An economy can be broken down into three sectors: primary, secondary and tertiary. The primary sector consists of extracting raw materials mining, agriculture and fishing; the secondary sector produces tangible goods such as cars and clothes and the tertiary sector provides consumers with services and intangible goods such as banking and information technologies services.

History shows us that there is a slow, organic progression toward an economy based on services. A country that is not very developed will likely rely heavily on jobs in the primary sector because these jobs provide the populace with food and other basic needs. As the economy develops and technology improves, the labor required in the primary sector will decrease.

This allows more people to work in the secondary sector, taking these raw materials and then converting them into products with a higher value. An increase in labor productivity will increase wages, and a wealthier populace will demand more services such as restaurants, wealth management.
This shift away from manufacturing has been a contentious issue in the 2016 election. Both Donald Trump and Bernie Sanders, and to a lesser extent Hillary Clinton, made this one of their salient issues.

They attributed much of this decline to the proliferation of trade deals, and all three have advocated against the Trans-Pacific Partnership.

There is a widespread belief that free trade facilitates the loss of manufacturing jobs and contributes to income inequality. Aram Balagyozyan, Ph. D., an economics professor in the Kania School of Management, contends that “The switch from manufacturing to service jobs has definitely had an effect on income equality.

However, you want to look at it as a historical, development process. The U.S. transformed from an agrarian society in the early 20th century to a manufacturing society, and now it is transforming into a service economy.”

John Marsalisi, a senior finance major and fixed income guru, believes that “The shift to a service economy appears to be an adaptation to an increasing trade deficit. The decrease in manufacturing jobs has left the service sector as the primary option for employment.”

It is not difficult to imagine why the loss of manufacturing jobs can lead to an increase in income inequality. As of May, the U.S. economy has lost 5 million manufacturing jobs and recent jobs reports have shown a stark contrast between the two sectors. According to the USDL, the economy added 151,000 jobs in August, but the manufacturing and mining sectors lost 24,000 jobs that month.

Manufacturing jobs typically do not require a college degree, while many of the service jobs available today do require one.

This creates an environment where those with a college degree will have a much easier time finding a job than those who do not.

Only 9 percent of kids from households in the bottom quartile graduate college, while that number is 77 percent for kids who come from households in the top quartile.

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