It's Official: World's a Service Economy

♠ Posted by Emmanuel in at 9/10/2007 03:04:00 PM
I'm somewhat surprised that no one has really blogged about this yet: The International Labor Organization (ILO), in its recently released fifth edition of the Key Indicators of the Labor Market (KILM) Program, has found that the biggest sector of world employment is now the services sector, surpassing agriculture. From a development standpoint, the ILO finds it curious that the usually theorized progression is not followed here of agriculture-->industry-->services. Of course, it would be ideal to differentiate the sophistication or "value-added" of various service sector jobs for not all service jobs are created equal when it comes to skill requirements. Here is the ILO's blurb on the epoch-making sectoral shift:
In recent years agriculture has lost its place as the main sector of employment and has been replaced by the services sector, which in 2006 constituted 42.0 per cent of world employment compared to 36.1 per cent for agriculture. As for the industry sector, it represented 21.9 per cent of total employment, which is almost unchanged from ten years ago. Although textbook theory suggests that economic development entails a structural transformation with a shift away from agriculture to the industry sector, this no longer seems to be reflected in reality. Instead of moving into high-productivity jobs in the industry sector, people are moving directly into the services sector, which consists of both high- and low-productivity jobs. Therefore, it is unclear if the sectoral shift goes hand in hand with productivity increases and thereby a better utilization of the workforce.

Agriculture is still the main sector of employment in the world’s poorest regions. Two-thirds of workers in sub-Saharan Africa and almost half of workers in South Asia and South-East Asia & the Pacific are in agriculture.

In most regions of the world, industry accounted for about one-fourth to one-fifth of all people employed in 2006, with the exception of sub-Saharan Africa and South-East Asia & the Pacific, which had the lowest proportions at 10.0 and 18.6 per cent, respectively.

In 2006, the share of employment in the services sector ranged widely from 71.2 per cent in the Developed Economies & European Union down to 24.1 per cent in sub-Saharan Africa. While all three Asian regions contained about one-third of employment in the services sector, the remaining regions had shares from 45.6 to 59.6 per cent.

Although the gender gap for sector employment is quite noticeable at the global level, it is even more prominent at the regional level for some sectors.1 For example, in 2006 women had a much higher share of agricultural employment than men in East Asia and the Middle East and men had a higher share than women in Latin America & the Caribbean, whereas in all other regions the shares were relatively equal.

In all regions, women’s share of employment in industry was lower than that of men in 2006. The difference was particularly striking in the Developed Economies & European Union, where only 12.7 per cent of women worked in this sector compared to 34.4 per cent of men. As for developing regions, the differences were considerable in Central & South-Eastern Europe (non-EU) & CIS, the Middle East and Latin America & the Caribbean.

Within services, women had a much higher share than men in Latin America & the Caribbean, the Developed Economies & European Union and Central & South-Eastern Europe (non-EU) & CIS while the shares were considerably lower for women than men in South Asia and the Middle East.

Segregation of occupations by sex is only slowly changing while stereotypes of women as caretakers and home-based workers still exist and are often being reinforced. Meanwhile within each sector women tend to occupy jobs with lower productivity. This may be perpetuated into the next generation if restricted and inferior labour market opportunities for women continue to lead to underinvestment in women’s education, training and experience.
Box 4b shows the shift over ten years' time in sectoral employment:
Meanwhile, Figure 4b shows that--surprisingly to me at least--China still has most folks employed in agriculture (as do a few other countries):

The Christian Science Monitor has a good article on this topic as well.

The life story of Brazilian Valdir de Santos, who has gone from farmhand to taxi driver, is in essence the career path of workers around the globe.

For the first time in human history, more people are laboring in service trades than in food production, according to data gathered by the International Labor Organization (ILO), an agency affiliated with the United Nations.

As recently as 1996, agriculture accounted for 42 percent of world employment, with another 21 percent of workers in goods-producing industries and 37 percent in services. By last year, the ILO says in a report released over the weekend, 42 percent were in services, 37 percent in agriculture, and 22 percent in industry.

It's too soon to talk about a white-collar world. Many of these newly urbanized workers aren't employed so much as they are scraping for survival on city streets. Mr. De Santos's own life has become easier, yet he recalls his father's farm as "a civilized life compared to the life the poor live today in big cities."

But if this great job shift is wrenching, the transition, if managed properly, can be as positive as it is inexorable, economists say. "The switch...frees people from geography," says Gregory Clark, an economic historian at the University of California, Davis. "Singapore can be as rich as Canada, even though Singapore has no land."

Technology, in fact, is opening the door to a new phase of economic competition in services – from banking to tourism and healthcare. This could expose advanced economies like the United States to new challenges, even as it presents enticing new opportunities for entrepreneurs. The Internet and air transport now make it as easy to trade many services across borders as it is to trade goods.

This migration away from farm work represents a vital phase in human progress, Mr. Clark says. In many places, it is occurring at a surprisingly slow rate. Once people make that step, they tend to live in larger communities, acquire more skills, and eventually make more money. The trend doesn't make manufacturing unimportant. But as the world gets wealthier, a rising share of income gets spent on services. And rising factory productivity allows more people to work in services.

Now, service jobs are growing worldwide, benefiting millions. Brazil's experience typifies the broad but uneven impacts. The country is globally competitive in agriculture and aerospace, among other industries. But services are where the growth is. In São Paulo, such jobs are springing up from posh tourism and financial districts to middle-class homes in search of cooks and maids.

"Driving a taxi is much easier than working the fields, I can tell you," Mr. De Santos says in Portuguese as he plies the streets of São Paulo. As a young man, "I worked 12 hours a day and I sweated from 7 in the morning until 7 at night. It was hard work. Here you think a little and it's not hard at all."

Yet all around him he sees jobs characterized by numbing drudgery and low pay. Many people who move to São Paulo simply swap a rural struggle against poverty for an urban one.

The ILO voices similar concerns in its new report on "key indicators of the labor market," released over the US Labor Day weekend.

Many workers remain "underutilized," it says. For all the challenges posed by the transition, the rise of services appears to coincide with positive trends in the economy or social indicators in most regions of the world. China and India have lifted millions of people out of poverty. Banking and tourism sectors are growing fast in many developing nations. The former Soviet bloc is capitalizing in part on expertise built up during the communist era, such as computer programming.

"They had to do it behind the Iron Curtain for military applications," and now they're deploying those skills for economic advantage, says Gary Kleiman of Kleiman International, a Washington consulting firm that tracks emerging economies. The UN's human development index, based on factors such as life expectancy and education, has been rising in most areas, although Sub-Saharan Africa remains a worrisome exception.

Economists generally say there's no reason the world's various regions can't enjoy simultaneous development. One's gain need not be another's loss.

"It's not a zero-sum game at all," as long as pro-growth policies are pursued, says Mark Weisbrot, a development expert at the Center for Economic and Policy Research in Washington. Straightforward steps can make a big difference, labor experts say. For instance, reducing child labor means that more children can get an education. "You'd be surprised ... how quick one can reap the benefits" of policies that boost labor productivity, says Lawrence Jeff Johnson, author of the new ILO report.

Every country will continue to need a mix of low- and high-skill workers, but global incomes may hinge on skill growth in the service economy. "As these economies strengthen, then we have pillars of strength around the globe," Mr. Johnson says. "This is a positive thing. It shouldn't be viewed as a fearful thing."

But some economists do worry about disruptions. As technology and rising education levels in developing nations turn services into tradable commodities, workers in Boston may find themselves in competition with lower-cost rivals in Brasilia. And workers in Brasilia could find themselves competing with even cheaper labor in Bangladesh.

At a congressional hearing this summer, Princeton University economist Alan Blinder warned that America faces the potential offshoring of millions of service jobs. From hair stylists to trial lawyers, providers of "personal services" will be OK, he predicts, but workers are vulnerable in fields where work doesn't need to be done near the customer.

Even unabashed proponents of globalization's virtues talk about the need to help displaced workers adjust. "Trade ... might even double in the next 20 years or so" as a share of the economy, predicts Jagdish Bhagwati of Columbia University in New York. "It's a fantastically good situation for everybody involved. [But you] have to have institutional support to handle the volatility" of jobs.

For now, most workers in Brazil are simply focused on local realities, not global opportunities. Natalia Torres, a university student in São Paulo, says her friends all see their futures in office work, or service industries, or some similar job that doesn't demand manual labor. She opted to study public relations because she likes dealing with people. She's working as an office assistant while attending classes at night.

"Young people today are lazy," she says in Portuguese. "My grandparents came from Europe and worked hard in the fields. I am certainly lazier than them and even [than] my mother…. The only people who work in the fields today are those that don't have the means to get to the big city."