THE CLASSIFICATION AND CHARACTERISTICS OF SERVICE INDUSTRIES

This PDF is a selection from an out-of-print volume from the National Bureau

of Economic Research

Volume Title: Trends in Employment in the Service Industries

Volume Author/Editor: George J. Stigler

Volume Publisher: Princeton University Press

Volume ISBN: 0-87014-058-2

Volume URL:

Publication Date: 1956

Chapter Title: The Classification and Characteristics of Service Industries

Chapter Author: George J. Stigler

Chapter URL:

Chapter pages in book: (p. 47 - 60)

CHAPTER 3

THE CLASSIFICATION AND CHARACTERISTICS

OF SERVICE INDUSTRIES

THERE exists no authoritative consensus on either the boundaries

or the classification of the service industries. The boundaries are

not particularly important: it matters little whether government or

trade is called a service industry, or, because of its size, is given an

independent status,, so long as it receives its proper attention.

The classification of service industries, however, is more urgent.

It would be desirable to distinguish more or less homogeneous

groups of industries to assist us in the study of a wide class of industries which, taken together, display great heterogeneity with

respect to every significant economic characteristic. We shall

therefore begin this survey of the growth of employment in various

?

service industries with a brief statement of the (arbitrary) list of

industries we include, and then a somewhat fuller analysis of

classifications and characteristics.

1. The Scope of the Service industries

The phrase "service industry" connotes economic activity which

takes the salable form primarily or exclusively of a personal service

rather than a material commodity¡ªthe industries which provide

material commodities being designated as agriculture, manufacturing, construction, and the like. The borderlines of even this

simple division are perplexing: it is not evident that a firm assembling purchased parts creates material commodities in a manner

different from a restaurant preparing and serving food, although

the Census calls the former establishment manufacturing and the

latter trade.

As we have said, the division between the broad categories is

more difficult than significant, and without further ado we list (in

Table 16) the industries which we shall term the service industries.

The list is commonplace in that we include none of the industries

conventionally assigned to the commodity-producing categories.

It is nonliteral at least to the extent that we omit transportation

and other public utilities providing nonmaterial products, simply

because they have been treated in earlier National Bureau studies.'

1

But the characteristics of transportation and public utilities are suf-

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CLASSIFICATION AND CHARACTERISTICS

TABLE 16

Service Industries and Their 1950 Employment

Employment

(thousands)

Industry

Retail trade

Government

Education

Armed forces

1,539

997

446

Medical and health

'Wholesale trade

Domestic service

Insurance and real estate

Medical and health (private)

Laundries, cleaning, etc.

Automobile repairs

Other personal servicesa

Banking and finance

Welfare, religious and membership orgs.

Entertainment and recreation services

Education (private)

Hotels and lodging places

Total

1,976

1,632

1,268

1,183

675

660

321

590

557

541

531

519

453

379

Business services

Legal, engineering and misc. prof. services

Barbers and beauty shopsb

Miscellaneous repair services

8,544

6,503

0

331

286

27,283

a Excluding the number employed in barber and beauty shops as reported

in the 1948 Census.

b Census of Business, 1948, Bureau of the Census, Vol. VI, Table 1G.

Source: Census of Population, 1950, Vol. II, Tables 118, 130, and 133

(excluding government workers employed in each industry).

These various service industries together employed about 27.3

million persons in 1950¡ªsome 47 per cent of the employed labor

force¡ªor, if we exclude government from both totals, some 20.4

million out of a total of 50.7 million privately employed individuals.

The industries are overwhelmingly those which deal with consum-

ers rather than with business enterprises. If we again put aside

government¡ªalthough on any reasonable view it provides chiefly

ficiently peculiar so that in any event they deserve separate analysis. The

studies are J. M. Gould, Output and Productivity in the Electric and Gas

Utilities, 1899-1942, 1946, and Harold Barger, The Transportation Industries 1889-1946, 1951, both National Bureau of Economic Research.

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CLASSiFICATION AND CHARACTERiSTiCS

consumer services¡ªthere are only five large business service categories in our list: wholesale trade, a part of legal and engineering

services, banking and finance, miscellaneous business services, and

a part of real estate.

2. The Cla8sification of Service Industries

In manufacturing, where the analysis of industry categories has

a long statistical history, groups of industries have been classified

sometimes by their chief raw material (as rubber products and

nonferrous metals), sometimes by their final products (automobiles, machinery). Both types of classification are fundamentally

related to technology¡ªand it is paradoxical that in. the sector of

the economy where technology is popularly conceived to be most

rapidly changing, a fairly stable technological classification of industries is possible.

In the service industries a classification by general type of input would be uninformative¡ªindustries as diverse as legal practice

and domestic service share the characteri.stic of requiring chiefly

personal services. Since the service industries do not in general

create material commodities, the type of goods produced would also

be an uninformative basis for classification, and a type of service

classification would lead us back to the occupational structure. So

we turn to other characteristics.

TYPE OF BUYER

A first basis, already partly incorporated in the Census of Service

Establishments, is the division of industries between those serving

chiefly business and those chiefly ultimate consumers. Most service industries deal chiefly with consumers, as we have noted, but

sizable groups do not. We can make rough estimates of the portion

of sales to business enterprises in the industries where this is of

importance.

?

At one extreme stands wholesale trade, 99 per cent of whose

receipts come from business enterprises,2 and the various business

services such as advertising, engineering, accounting, and similar

independent professional groups.8 Legal service is closer to the

dividing line: in 1947 about 25 per cent of the lawyers were salaried employees of business and government, and the independent

2

S

Census

of Business, 1948, Bureau of the Census, Vol. IV, p. 22.

But the business services include also industries which serve ultimate

consumers, e.g. window cleaning, disinfectant and exterminating services.

49

CLASSiFICATiON AND CHARACTERiSTICS

lawyers received 47.9 per cent of their fees from businesses.4 Probably well over half the employees in "real estate" deal with private

residential property.5 Well over half of the employees in insurance

are in those branches dealing with private individuals.6 Aside from

finance and banking, for which no estimate can be made, other

large service industries deal primarily with private consumers.

There are two reasons why the industries serving chiefly business

enterprises should be separately dealt with. The first reason is that

invariably a considerable, and sometimes dominant, portion of the

activity is carried on within nonservice business enterprises themselves. For example, the census reports a small industry engaged

in duplicating, addressing, and mailing¡ªof course the vast major-

ity of this work is done by the business firms within their own

establishments. Even a large and increasing share of. wholesaling

is being undertaken by manufacturers. It would be seriously misleading to measure trends in employment or output in this type of

activity on the basis of the employment or output in the separately

organized businesses performing a changing share of the work.

The second reason for separate treatment is that to explain trends

in business service industries one must usually turn to a wholly

different set of explanatory factors from those found working in

consumer service industries.

We shall therefore put to one side the predominantly business

service industries, and discuss their growth in a separate chap-

ter (7).

CATEGORIES OF CONSUMER EXPENDITURE

Since most service industries deal with consumers, it is natural

to seek for a classification of these industries on the basis of the

categories of expenditure which have been developed to analyze

consumer behavior. This classification has a basic significance:

The most active competition will usually be between those indusSurvey of Current Business, Dept. of Commerce, August 1949, p. 18.

Office buildings, the largest commercial class in real estate, employed

87,000 people in 1935. Census of Business, 1935, Non-profit Organizations,

Office Buildings, Miscellaneous, Table 7, p. 22.

6 In 1939, 66 per cent of premium income was from life insurance, and

16 per cent from fire and marine insurance, and 18 per cent from casualty

insurance. Private individuals are dominant in the first class, and important

(through fire and automobile insurance) in the latter two. Life Insurance

Fact Book, Institute of Life Insurance, 1953; Spectator Casualty and Surety

Insurance Tear Book, 1940; and Spectator Fire and Marine Insurance rear

Book, 1940.

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