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Home > Programs & Publications > DPE Analyses > The Service Sector
ANALYSIS Analysis from The Service Sector: A Statistical Portrait, 2002 Edition

The Service Sector

Over the last 50 years, the rising share of employment in the service sector and the declining share in the goods-producing sector have transformed the U.S. labor market. In 1950, 59% of the nonagricultural civilian labor force was employed in the service sector and 40.9% in the goods producing sector; in 2001, the service sector accounted for 81% of the nonagricultural civilian labor force, while the goods-producing industries employed 19%.1, 2 (See pages 7 and 9.)

The employment change anticipated for the period from 2000–2010 is expected to reinforce this well-established trend toward a service-based economy. Even though the goods-producing sector will continue to add jobs, its relatively slow 0.5% annual growth is dwarfed by the anticipated 1.8% annual growth and 20.5 million jobs created by the service sector. Virtually all growth in employment during this period is expected to be in the service sector. More than eight out of every ten jobs in the U.S. economy will be in the service sector by 2010, when the service sector is expected to employ 125,390 million people. (See page 8.)

In addition to being the dominant source of employment growth in the economy, growth in output in the service sector will remain robust. Nearly 60% of the growth in total output is anticipated in this sector, where output is expected to expand at about the same rate as during the preceding decade — 3.4% — and reach $13.1 trillion by 2010. Output in the goods-producing sector is expected to expand by 3%, slightly slower than the 1990–2000 period. Thus, while service sector output amounted to $9.4 trillion in 2000, an output of $13.1 trillion is anticipated in 2010. (See page 3.)

The term "service" can mean many things. When applied to the economy, it can mean all activities not involved with producing something physical (i.e., goods). In the government classification system, the part of the service sector called the service industry includes many, but not all, service activities in the service sector. The service industry includes health services; legal services; engineering and architectural services; computer and data processing services; educational services; the motion picture industry; the amusement and recreation industry; the hotel and lodging industry; the car repair, service and parking industry, etc. The service sector also includes many other industries, such as wholesale and retail trade; finance, insurance and real estate; transportation, communications, and utilities; and Federal, State and local government.

As in the past, employment is expected to increase at very different rates in the various parts of the service sector, and not all industries in the sector are expected to increase employment. By far the largest increase is expected to occur in the service industry, which is projected to account for almost two out of every three new jobs across the nation. Many other service sector industries, such as some utilities industries; finance, insurance and real estate; and wholesale trade are expected to grow slowly. Employment in the Federal Government (excluding the Postal Service) is expected to decline. Retail trade, which includes eating and drinking places, is expected to increase modestly, as is State and local government. (See pages 10–12.)

he anticipated growth in the service industry continues a long-term trend. In 1945, at the conclusion of World War II, the service industry accounted for only 10% of nonagricultural employment, compared with 38% for manufacturing. By 1982, it surpassed manufacturing as the largest employer among major industry groups. By 2001, the service industry accounted for more than 50.5 million, or more than 38% of all nonagricultural employment, while manufacturing at 19 million (14% of all nonagricultural employment) employed fewer people than retail trade. More Americans now work in physicians’ offices than in auto plants; in computer and data processing services than in car or steel manufacturing.3 (See pages 7 and 9.)

The tremendous growth in employment in the service sector is the result of demographic shifts, changes in consumer preferences, major technological advances, new competitive pressures, and global demand. Some of these same forces have contributed to the decline in both the level and share of manufacturing jobs.

Many Service Sector Jobs Require Degrees

The shift to service-sector employment certainly does not mean that the education and training requirements for new workers added to the economy will be lower. In fact, the education and training requirements for workers employed in the service sector are higher than those for workers in the goods-producing sector, and that disparity is expected to increase. In 1998, 23% of workers in the service sector worked in occupations requiring a bachelor’s degree or higher, as opposed to only 15% in goods-producing industries. Service-sector industries employed 78% of all workers in 1998, but 85% of workers with a bachelor’s degree or higher. Further, the proportion of workers needing a college or university degree in the service sector is expected to increase to 24% by 2008.4 Many of these are professional employees.

Between 2000 and 2010, employment in professional and related occupations is projected to grow faster and add more workers (7 million) than any other occupational group. These workers will account for more than 31% of all employment growth during this period. In terms of employment share, professional and related occupations are expected to experience the largest increase, rising from 18.4% of total employment in 2000 to more than 20% in 2010.5

Nearly three-quarters of the job growth in the professional and related occupations is projected for three groups: computer and mathematical occupations; health care practitioner and technician occupations; and education, training, and library occupations. The vast majority of these jobs are in the service industry.6

Service Sector Trade Is Crucial

Not surprisingly, service-sector industries have become extremely important to the nation’s trade balance. The U.S. is the world’s premier producer and exporter of services. The dominant role of services in the U.S. economy translates directly into growth in skilled jobs, leadership in the development and commercialization of technology, and global competitiveness. U.S. services exports nearly doubled during the 1990s and reached a record of $283 billion in 2001. While the value of goods imported exceeded those of goods exported, the reverse was true for services. The services trade surplus offset 18.5% of 2001’s merchandise trade deficit. (See page 61.)

The largest service-sector exports are travel and tourism; trade based on the use of intellectual property (U.S. films, videos, music, etc.); business, professional, and technical services; and freight and port services. Passenger fares, finance, and insurance also contribute significantly to the nation’s exports. (See page 64.)

U.S. services compete successfully worldwide. Major markets for U.S. services exports in 2001 included the European Union ($86 billion in 2001), Japan ($32 billion), and Canada ($24 billion). Mexico is currently the largest of the emerging markets for U.S. services ($14 billion in 2000), but notably, there are now emerging markets around the world that import more than $1 billion in U.S. services each year: Argentina, Bermuda, Brazil, Chile, and Venezuela in this hemisphere, and China, Hong Kong, India, Indonesia, Korea, Malaysia, the Philippines, Singapore, Taiwan, and Thailand in Asia. In 1997, South Africa became the first African country to import more than $1 billion per year in U.S. services. Although exports fell by three percent during 2001’s global economic slowdown, they are now forecast to surpass $350 billion by 2005.7 (See page 65.)

The Service Industry

The variety of industries that make up the service industry will collectively account for three out of every five new jobs created in the U.S. economy between 2000 and 2010. The service industry will contribute 12.9 million of the 21.8 million increase expected in nonfarm wage and salary employment through 2010. Service industry employment is expected to reach 52.2 million jobs in 2010, up from 39.9 in 2000. This 2.9% increase is the highest annual growth rate of any industry division.

The Bureau of Labor Statistics’ projections indicate that within this rapidly expanding industry, most of the projected job growth is concentrated in two areas: business services (5.1 million jobs) and health services (2.8 million jobs). Social services is another area under the service industry umbrella that is projected to experience a substantial gain in employment between 2000 and 2010 (1.2 million jobs).8 (See pages 43–44.)

Business services are expected to be the fastest growing in the service industry. The projected 14.9 million level of employment reflects an anticipated annual growth rate of 6.7% between 2000 and 2010. Output in business services is projected to increase from $713 billion in 2000 to $1.3 trillion in 2010, or at an average annual rate of 6.0%. (See page 10.)

The computer and data-processing services industry comes under the business services umbrella. This industry has grown dramatically over the past decade and its wage and salary employment is expected to increase by more than 86% between 2000 and 2010, making it the fastest-growing industry in the U.S. economy. While job opportunities will be excellent for most workers in the industry, professional and related workers have the best prospects, reflecting continuing demand for higher-level skills needed to keep up with changes in technology. Professional and related occupations currently account for more than 53% of employment in the industry; by 2010 such jobs will number 2,299,000, or 59% of all computer and data processing services employment. Industry output is expected to reach $600.8 billion by 2010 (an increase of $322.6 billion from its 2000 level), reflecting an 8.0% average annual growth rate.9

This industry is a major employer of computer-related workers. Computer-related jobs are expected to be among the fastest-growing occupations in the U.S. economy. In fact, they account for eight out of the top ten occupations in the Bureau of Labor Statistics list of the 30 fastest-growing occupations: computer software engineers (applications); computer support specialists; computer software engineers (systems software); network and computer systems administrators; desktop publishers; database administrators; and computer systems analysts. While workers in computer-related occupations are employed in many industries, computer specialists account for almost half of all employees in computer and data-processing services. By 2010, computer specialists are expected to constitute the majority of employees in the industry. These are professional occupations, and the most significant source of training for all of them is a bachelor’s degree.10 (See pages 29–32.)

Business services also includes the rapidly growing personnel-supply services industry, which is comprised mostly of temporary-help services. Employment in this industry is expected to increase by 49.2% between 2000 and 2010, more than three times the rate projected for all industries combined. While most new jobs will arise in the largest occupational groups in this industry — office and administrative support occupations, production, and transportation and material moving occupations — the Bureau of Labor Statistics expects that the trend toward specialization also will spur growth among professionals, including engineers, computer specialists, nurses and other healthcare practitioners, and managers as government and industry increasingly contract out a variety of functions. In addition, growth of temporary-staffing firms specializing in accounting, legal, and information-technology services will provide more jobs for professional workers within those fields. The personnel-supply services industry is one of the fastest-growing industries in the U.S., and is the industry expected to provide the most new jobs. (See page 48.)

Health services is one of the largest industries in the country, employing more than 11 million people. About 13% of all wage and salary jobs created between 2000 and 2010 will be in health services. Comprised mostly of health-practitioner offices, nursing and personal care facilities, and hospitals, this sector’s projected 2.5% percent average annual employment growth rate will result in 2.8 million new jobs. Employment is expected to increase from 10.1 million jobs in 2000 to 12.9 million jobs by 2010. Projected rates of employment growth for the various segments of this industry range from 10% in hospitals, the largest and slowest-growing industry segment, to 68% in the much smaller home healthcare services. (See page 23.)

Many of the U.S. occupations projected to grow most rapidly are concentrated in health services. For example, by 2010, employment within the industry of personal and home-care aides is projected to increase by 62%, medical assistants by 57%, physician assistants by 53%, and medical records and health-information technicians by 49%. (See page 22.)11

Spurring the growth of health services is the fact that the elderly population, a group with much greater than average healthcare needs, will grow faster than the total population between 2000 and 2010. This growth will cause increased demand for health services, especially for home health care and nursing and personal care. Advances in medical technology will continue to improve the survival rate of severely ill and injured patients, who will then need extensive therapy and care. In addition, new technologies enable the identification and treatment of conditions not previously treatable. Medical group practices and integrated healthcare systems will become larger and more complex, increasing the need for office and administrative support workers. Also contributing to industry growth will be the shift from inpatient to less-expensive outpatient care. Employment growth in the hospital segment will be the slowest within the health services industry, as the segment consolidates to control costs and as clinics and other alternate care sites become more common.12

Industries within the social services sector, second only to business services in terms of employment and output growth, are projected to maintain their relative importance. Social services employment is projected to increase by 1.2 million from its 2000 level of 2.9 million. This reflects an annual growth rate of 3.6%, more than double the projected employment growth for the overall economy. Output for this sector is expected to increase to $171.4 billion in 2010, up from $103.4 billion in 2000 — an annual average rate of 5.2%.

Most of the anticipated employment gain in social services is attributed to the growth in residential care. This industry — encompassing homes for the elderly and emotionally and physically disabled, in addition to halfway houses, rehabilitation centers, and orphanages — is also projected to experience very rapid growth. The aging population, the avoidance of costly nursing homes or hospital care, and an effort to better integrate the physically and mentally disabled into society will result in the residential-care industry expanding by 512,000 jobs to 1.3 million by 2010. Then, with women’s labor force participation rising in-step with women of childbearing age, the childcare services industry has emerged as one of the fastest sources of employment growth.13 (See pages 43–44.)

With about one in four Americans enrolled in educational institutions, educational services is the largest industry, accounting for nearly 12 million jobs in 2000. Between 2000 and 2010, educational services is expected to provide a significant number of new jobs — 1.6 million — even though this growth rate of 13.6% is less than average. More than two-thirds of all employees in education services are in professional and related occupations that generally require at least a bachelor’s degree; some require a master’s or doctoral degree. Teachers account for almost half of all workers in this industry. By 2010, the number of job openings for teachers should increase substantially because of projected increases in enrollments and retirements. (See page 25.)

Every year, Americans spend billions of dollars on entertainment. The increasing availability of cable and satellite television has spurred demand for film and videotape production of domestic and foreign television, feature films, home video, and informational, educational, and industrial films. Indeed, the U.S. motion picture industry produces much of the world’s feature films and many of its television programs, and is an important source of earned export dollars. The international market for U.S.-made films is expected to continue growing as more countries and foreign individuals acquire the ability to view U.S. films. In response to increasing demand, wage and salary employment in audiovisual production and distribution is projected to increase by almost 29% between 2000 and 2010. Employment in professional and related occupations is expected to increase by more than 36%.14 (See page 36.)

Looking through an occupational lens, the Bureau of Labor Statistics anticipates a 26.3% increase in the number of writers and editors between 2000 and 2010, and a more than 36% increase in the number of public relations specialists, while athletes, coaches, umpires and related workers are expected to increase by more than 27%. Where the performing arts occupations are concerned, a 17% increase in the number of dancers is projected, along with a 20% increase in the number of musicians. The number of actors is expected to increase by almost 27%. (See page 37.)

Other Service Sector Industries

Employment growth in the communications industry will be very uneven. Employment in radio and television broadcasting is expected to increase by less than 10% between 2000 and 2010, slower than the 15% projected for all industries combined. Factors contributing to this slow rate of growth include industry consolidation, introduction of new technologies, greater use of prepared programming, and competition from other media. (See page 38.)

For example, employment in cable and other pay television services is expected to increase by 51% between 2000 and 2010. Job growth here is driven by advances in technology that allow the industry to expand beyond pay television services. The delivery of new telecommunications services, such as high-speed Internet access, telephone communications, and digital television programming, will increase demand for pay television services.15

The number of wage and salary workers in the telecommunications industry is expected to increase by 12% between 2000 and 2010. The number of professionals will increase by more than 33%. Especially striking is an anticipated 80% increase in computer support specialists and a 60.4% increase in computer systems-software engineers. The demand for greater telecommunications capacity — or bandwidth — will create jobs that require technical skills. The expansion of communications networks, and the need for telecommunications providers to invest in research and development, will create jobs for electrical and electronics engineers. The use of increasingly sophisticated computer technology will lead to the increased employment of computer professionals, including computer engineers, computer support specialists, and computer systems analysts. Growth in these occupations will create openings for engineering, natural science, and computer and information systems managers. (See page 42.)

Employment in the finance, insurance, and real estate (FIRE) sector is projected to increase by 687,000, up from its 2000 level of 7.6 million. This reflects an annual growth rate of 0.9%, slower than the total nonfarm wage and salary increase (1.6%) and caused in part by deregulation, industry consolidation, heightened competition, and technology gains. Employment in banking is expected to decline because of technological advances such as automation and consolidation through bank mergers. However, a 53% increase in computer support professionals is expected, along with a 37% increase in computer systems-software engineers. Increasing investment in securities and commodities, along with the growing need for investment advice, is expected to produce a 20% employment growth in this sector of the FIRE industry between 2000 and 2010. In the insurance industry, total wage and salary jobs are expected to increase by only 6.4%. However, the number of computer support professionals is expected to increase by 65%, while a 30% increase of computer systems analysts is expected. (See pages 33–35.)

Public sector employment is expected to add almost 1.8 million jobs between 2000 and 2010, reaching 22.4 million in 2010. Employment in the Federal Government is expected to decline from 2.8 million in 2000 to 2.6 million in 2010 due to budgetary constraints, the growing use of private contractors, and the transfer of some functions to State and local governments. State and local government employment is expected to add more than 1.9 million jobs and reach 19.8 million by 2010. Driving this growth is the expected 1.1 million additional jobs in State and local government education, where more than half of all State and local government employment is found. The Bureau of Labor Statistics expects that slower student enrollment rates at elementary and secondary schools will be offset by increasing demand for post-secondary education, continued career and skills training, and new distance-learning opportunities. In addition, proposed government initiatives such as universal preschool, full-day kindergarten, and reduced class size will sustain this sector’s strong growth. By contrast, State and local government hospitals are expected to have large employment declines, losing 22,000 jobs by 2010, as a result of privatization and budget cuts. (See pages 45 and 47.)

Women in the Service Sector

Women now account for 47% of the U.S. labor force. They constitute the majority of workers in both the service sector (53.5% in 2001) and in the service industry (more than 62%). Within the service industry, for example, more than 69% of the employees in education services were women in 2001, as were 82% of social-service employees, 77% of hospital employees, 58% of all employees in finance, insurance, and real estate, and 50.8% of all retail employees. Service sector industries where men outnumber women include: transportation and public utilities, including communications; business, automotive, and repair services; entertainment and recreation; public administration; and wholesale trade.

As in the goods-producing sector, the median weekly earnings of men exceed those of women by up to 36%. In 2001, the median weekly earnings of men in the service industry as a whole exceeded those of women by 24.5%. Women earned less than their male counterparts even in occupations where women are the vast majority, such as registered nurse and teacher. (See pages 21, 24, 26, 27, and 41.)

The Rise of the Contingent Worker

The nature of employment for many Americans is changing. Beginning in the 1980s, downsizing put an end to long-term, full-time, year-round employment for many workers. As companies restructured and downsized, contingent work arrangements blossomed. The use of contingent workers has become an integrated business practice in today’s economy, where the rise in contingent work has coincided with a more general shift toward greater flexibility and lower costs for employers.16

Contingent workers can assume many forms, including temporary and part-time employees, consultants, leased employees, subcontractors, and short-term, life-of-the-project employees. The common denominator for all contingent work is that there is no expectation of a long-term relationship between the employer and the employee, and there is little job stability. Experts estimate that the contingent work force grew by 11.1 million workers, or 44.4%, between 1980 and 1999. It is estimated that between 1999 and 2001 the number of contingent workers slightly decreased.17

The service sector, and more specifically, the service industry, is a major source of contingent employment. In February 2001, more than 55% of all contingent workers were employed by the service industry. Moreover, 20% of all contingent workers were professionals, a higher percentage than for any other occupational category. They are engineers, computer scientists, chemists, nurses, architects, and lawyers, among others. (See page 51.)

Contingent work arrangements most often mean less economic security for employees, and not only because the work is not "permanent." Health, pension, and other benefits such as paid vacation and sick leave are often not available to the contingent work force. According to the Bureau of Labor Statistics, in February 2001, about 91 percent of all contingent employees were not covered by any form of health insurance provided by their employer. Those who were insured (about 58% of the contingent work force in 2001) usually had obtained coverage outside the workplace, e.g., through a spouse. This contrasts with full-time, core, or permanent wage and salary workers, 55% of whom had health insurance through their employer and an additional 28% of whom had insurance through an alternative source. Contingent workers also often lack the protected right to form and join unions.18

Unions in the Service Sector

The proliferation of professional and technical workers in the last 50 years and the growth of work, including contingent work arrangements, in the burgeoning service sector have caused major shifts in the labor movement. Increasing numbers of nurses, teachers, university researchers and professors, airline customer service representatives, psychologists, scientists, engineers, and a host of other highly trained and skilled white collar workers have found a voice for themselves and their professions through union organization and the collective bargaining process. Even physicians are turning increasingly to unions as their autonomy is eroded by health maintenance organizations and other managed-care plans. Professionals are joining and forming unions at a faster rate than any other occupational group. There are now more union members in the professional and related occupations than in any other occupational classification. Indeed, the labor movement is about 50% white collar.

Unions represented significant numbers of service-sector employees in 2001, especially in transportation (35%), communications (20.5%), education (39%), and public administration, including government (36%). Many of these are professional employees. Growing insecurity, increasing work hours, and decreasing job satisfaction are prompting these workers to turn to the collective power of unions for support and assistance. Union membership provides many benefits for highly skilled white collar workers in the service sector, including having a say in their work and in their workplace, more equitable pay and workloads, and dignity and improved status for themselves and their occupations. (See page 56.)

Union membership makes financial sense for those who work in the service sector, as it does for those who work in the goods-producing sector. In the service sector, those who enjoy union representation earn more than their nonunion counterparts, the exception being in the sparsely organized finance, insurance, and real estate area.

Union membership also means more equitable pay: it narrows the gap that disadvantages women and minorities. Despite the Equal Pay Act, which was passed some 39 years ago, women continue to earn less than men. Working women in the U.S. were paid 74 cents for every dollar earned by a man in 2001. Women who were union members earned 23% more than their nonunion counterparts that year, while union men earned 15.5% more than nonunion men. The differences are even more marked for Black and Hispanic women. The median weekly earnings of Black union women were about 25% more than their nonunion counterparts, while Hispanic women who were union members had weekly earnings that were almost 32% higher than their nonunion counterparts.

Like employees in the goods-producing sector, organized service-sector employees receive better benefits than their nonunion counterparts. Union workers in the service sector are much more likely to have employer provided health insurance and secure retirement benefits than those who are nonunion. Costs for employee benefits in the service sector are 75% greater for union than for nonunion employees. (See page 57.)

In Sum…

The world of work changed enormously in the second half of the twentieth century. The bulk of employment shifted from the goods-producing to the service-producing sector of the economy, and from blue to white collar occupations. Service sector trade became increasingly important. The participation of women in the labor force increased dramatically so that by 2001, women accounted for close to 50% of the labor force. In addition, the last two decades have seen the growth of a contingent work force — 20% of whom were professionals in 2001— employed by "virtual" employers. This work force usually has little in the way of benefits or security. These trends will persist. The major growth in the U.S. economy will continue to occur in the service sector and among the professional and related occupations.

The changing character and conditions of work, and the resulting turbulence, have prompted increasing numbers of professional and technical workers to turn to unions to defend or recapture their professional autonomy and to have a say in the decisions that affect their work lives. The focus of the U.S. labor movement in the twenty-first century must reflect these changes in the world of work. The importance of highly skilled white collar workers to the labor movement has been underscored by AFL-CIO President John Sweeney. Addressing a meeting of the Department for Professional Employees in 1997, he said, "If the labor movement is to grow as it should — and as it must — it will be organizing millions more professional and technical workers. This is one of the highest priorities of the Federation."

Pamela Wilson
Assistant to the President

Note: This analysis was taken from The Service Sector: A Statistical Portrait, 2002 Edition. To find out more about ordering the publication, click here.


  1. Economic Report to the President, Transmitted to Congress February 2002, U.S. Government Printing Office, Washington, D.C., 2002, Table B46, pp. 374 and 375.
  2. Joseph Meisenheimer II, "The Service Industry in the ‘Good’ Versus ‘Bad’ Jobs Debate," U.S. Department of Labor, Bureau of Labor Statistics, Monthly Labor Review, February 1998.
  3. U.S. Department of Labor, Bureau of Labor Statistics, Career Guide to Industries,2000-03, Bulletin 2532, 2002.
  4. U.S. Department of Labor, Bureau of Labor Statistics, Employment Outlook, 1998-2008, Bulletin 2522, September 2000.
  5. Hecker, Daniel, "Occupational Employment," U.S. Department of Labor, Bureau of Labor Statistics, Monthly Labor Review, November 2001.
  6. bid.
  7. U.S. Department of Commerce, International Trade Administration, Office of Service Industries, Services Exports in the U.S. Economy, May 2002.
  8. Berman, Jay, "Industry Output and Employment," U.S. Department of Labor, Bureau of Labor Statistics, Monthly Labor Review, November 2001.
  9. U.S. Department of Labor, Bureau of Labor Statistics, "Career Guide to Industries, 2002-3 Edition," op. cit.
  10. Berman, Jay, "Industry Output and Employment," op. cit.
  11. Ibid.
  12. Ibid.
  13. Employment Outlook, 1998-2008, op. cit.
  14. Career Guide to Industries, op. cit.
  15. Ibid.
  16. Jorgensen, Helene and Robert McGarrah, Contingent Workers: Health and Pension Security, AFL-CIO Department of Public Policy. 2001.
  17. U.S. Department of Labor, Bureau of Labor Statistics, Contingent and Alternative Work Arrangements, February 2001.
  18. Ibid.

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