United States: The Service Economy
Large size and rich natural resources--7% of world land area
for 5% of world's population. Gavin Wright—resource abundance made major
contribution to industrialization between 1890 and 1940.
"Melting Pot" Culture
-- Benefit: Complementary skills. Cost: Discrimination and
Philosophy of Individualism -- belief that individuals can
have significant impact on society; success through individual
hard work and frugality. Encourages higher education; discourages
vocational education and welfare spending.
The Changing Structure of the Economy
Agriculture most important employment sector until 20th
century. Large agricultural exporter during the French Revolution and
Napoleonic wars. Industry dominated
only from 1900-1930.
The Service Sector - Employs ¾ of the United States labor
force, projected to rise above 80% by 2024. There will be more employees in buxsiness services or health care, alone, than in all of the goods producing sector. Expansion moved from wholesale and retail trade to public
services, and finally the non-profit services, education and health,
accounting, finance, insurance, and computer programming.
See projections to 2024.
Causes of growth
income elasticities—demand side
productivity growth differential—slow productivity growth requires larger share of labor,
higher current prices
labor supply—women’s preferences
Productivity - Growth is relatively slow in
services, so rising service share has caused overall slowdown and higher
Stability - Has increased the stability of
output and employment. Service employment has risen every year since
1958. Nearly immune to recessions, perhaps because:
i. higher percentage of
ii. flexible incomes
(piece work or commission).
iii. no inventories.
iv. government services
c. Positive contribution
to balance of payments. See Data.
Labor and income distribution - Many people
are self employed and few are unionized. Service sector growth apparently
contributes to income inequality.
Industrial Organization -- At the end
of the Civil War, the age of big business began. Today, concentration in
U.S. is comparable to levels in France, W. Germany, Italy, Japan and the
U.K. Shepherd found that the share of national income originating in
"effectively" competitive industries increased significantly between 1958 and 1980. More recent research by
Abdel-Raouf suggests that the effectively competitive share of the U.S.
economy continued to grow to through 1997, and monopolies have fully disappeared.
unemployment has been lower than European during most years since 1982. In 2016, the U.S. rate was 4.9% when the EU rate was 8.6%. Why? Smaller wage increases, flexible labor market. Union membership
declined from 27% in 1950s less than 12% in 2010.
A. Why decline of unionization?
1. Service sector, self
2. Job satisfaction.
3. Employer resistance.
B. Have unions
increased wages at expense of profits or at the expense of nonunion wages?
Financial Sector -- Well-developed financial markets. Dual banking
system with gradual strengthening of central bank (Federal Reserve created
in 1913; gained control of reserve requirements for all federally insured
depository institutions in 1980.
Governmental Sector -- Federal division of labor. Relatively
A. Regulation -
How much safety do we want? Banks?
Fiscal and Monetary Policy - National budget is prepared and
proposed by the executive branch; examined, amended, and approved by the
Congress; and signed into law by the President. Monetary policy is set by
the Federal Reserve, insulated from political pressure. No formal use of
indicative planning or industrial policy.
C. Distribution of Income - relatively
unequal compared to other industrial nations. Resistance to governmental
redistribution. The taxation system has rlatively little effect on distribution,
but transfer payments have a significant effect.
UPDATE: In 2009, income taxes (federal, state, and Social Security
payroll) and the earned income credit reduced the Gini index by only
3.3%, but transfer payments reduced it by 13%. (U.S.
Census Bureau estimates)
The distribution of
total income has been
fairly stable since 1950. Progressive effect of
growing transfer payments may have been offset by regressive growth of
Kupchan: Polarization of American politics is driven, in part, by a reaction against globalization since the Great Recession.