Creating an upscale service economy

November 29, 2012

The American economy is irrevocably shifting from manufacturing to services. Our workforce has gone from 28 percent factory workers and 72 percent service workers in 1978 to 14 percent factory workers and 86 percent service workers today.

But the service sector encompasses tens of millions of “bad” jobs that are unstable and offer low pay with few benefits – routine clerical work, for example, or retail sales, fast food or low-end human services such as nurse’s aides – alongside a relatively small number of well-compensated professional positions, including doctors, lawyers and scientists, as well as astronomically rich investors and plutocrats in the financial sector.

As we move into this service economy, there are political choices to be made – or evaded. We can allow our increasingly laissez-faire economy to take a low road of underpaid and under-professionalized service jobs. Or we can use social investment, taxation and public borrowing to create more high-level careers in the human services, which will, in turn, help stimulate an economic recovery and stem the tide of inequality.

Millions of jobs serving the very young, the very old and the very sick are now low-wage positions. This is a social decision, however, not the product of private supply-and-demand. For the qualifications and earnings for these occupations are determined by prevailing mores as much as by labor markets.

A person caring for 3-year-olds, for example, can be a glorified baby sitter with minimum certification as a day-care worker ‑ or a well-trained professional in child development. So the job can pay minimum wage, or it can be a middle-class occupation and career.

This social choice governs not just the quality of the job but also the quality of the early education – crucial for those children who lack the advantages of more affluent families. High-quality early childhood education and day care can also help mothers and fathers be better parents.

A nursing home worker, similarly, can be a nurse’s aide making $8 an hour or a licensed practical nurse or trained recreation aide earning almost twice that – closer to $30,000 a year. Well-qualified and trained nursing home personnel produce not just better career opportunities and economic stimulus but also better quality of life for the elderly. Having competent staff proves more efficient in the long run because there is less turnover, less need for outlays on recruitment, better morale and fewer incidents of neglect that require far more expensive medical treatment.

I’ve done a rough calculation and found that for an annual expenditure of about $100 billion to $150 billion – less than 1 percent of gross domestic product – we could set a national policy goal of guaranteeing that all human service jobs are professional jobs that pay at least $25,000 a year. This requires professionalizing some occupations, as well as making some woefully underfunded services, such as early education, universally available.

As long as the current deflationary economy persists, this funding could come from additional government borrowing, since interest rates are extraordinarily low. As the economy recovers, the normal increase in revenue could pay for part of the cost, supplemented by increased progressive taxation. The increase in the supply of good service jobs would accelerate the recovery.

Historically, production jobs have paid better wages than service jobs. But globalization has increasingly allowed factory jobs to be done offshore by lower-paid workers. Most human service jobs, by contrast, must be performed at home. If we have a national policy of guaranteeing that they are well-paid jobs, there is no risk that they will move overseas.

Two of the fastest-growing job categories, according to the Bureau of Labor Statistics, are home care workers and nurse’s aides. These occupations suffer from shortages because the pay is low and the working conditions often frustrating. Nurse’s aides typically make slightly above minimum wage, whereas licensed practical nurses (usually a one-year certificate program) earn about $20 an hour, or $42,000 a year. Registered nurses, graduates of a two- or four-year college degree program are more highly trained still, with median earnings in excess of $60,000.

Extensive evidence shows that having home care or nursing-home care performed by workers with the lowest minimally acceptable skill levels is a false economy. The money saved on lower wages is lost in medical incidents, like increased bedsores on the part of nursing home residents or failure to diagnose medical conditions early. Both can result in the need for far more expensive hospital stays. At the same time these service workers are condemned to jobs that do not pay well.

More than 60 percent of all human service work is underwritten, directly or indirectly, by some level of government. Most care in nursing homes as well as home care is paid by Medicaid or by other state programs, while child care for the poor and pre-kindergarten programs are provided or subsidized by government. Thus, public policy determines whether these jobs are professional occupations or casual labor and whether they are adequate to the social need.

A national strategy of filling the holes in America’s social safety net could prove to be a countercyclical engine of recovery. It could also offer a permanent strategy for replacing our dwindling highly paid manufacturing jobs with domestic, well-compensated non-exportable service jobs. We would get the quadruple benefit of macroeconomic stimulus, better jobs, better quality services and (in the case of the young) improved lifetime opportunity and productivity.


INSET PHOTO: Pre-schooler Cecil Smith holds hand of teacher’s assistant as he prepares to go to class with Mardi Gras beads in Louisiana. REUTERS/Lee Celano

This piece was adapted from a report for the New America Foundation and Demos, “Economic Recovery and Social Investment.”





We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see

This is not true. The US is not destined abandon manufacturing. Many “services” add no value and should not be part of the US economy, they are simply troll fees set up to enrich gatekeepers for perpetuity. Germany is a prime example of how smart manufacturing and working protections have created a juggernaut of high demand products and higher trade surpluses. The incredible waste and carbon exporting scheme of having unregulated nations do all our manufacturing for us is both dishonest and a sustainability nightmare. Furthermore, creating a “service” economy to cater to the elite has gotten us to where we are now which is stalled and indebted. Please don’t make things even worse with more trickle down trickery.

Posted by Alex77 | Report as abusive

What dream world does this guy live in? Everyone can’t have “Professional” jobs. To say they can is propping up people with false hopes. It is almost criminal. I was expecting him to give everyone a million dollars to eliminate poverty too. The only way this guys world works is with DNA manipulation and complete population control.

Posted by tmc | Report as abusive

Look at the space between goods and services, such as “non-traded goods” (i.e., local services). For example, most clothing is manufactured overseas, in places like Bangladesh where they recently had a well-publicized fire. Clothing tends not to be made in the U.S. because of the high labor labor content of clothing. However, retail tailors and seamstresses are necessarily located near their customers. One thing that could increase the local content of clothing would be to develop automation to reduce the cost of providing retail tailor and seamstress services so that more people would purchasing clothing that has to be fitted. This is, of course, how things were done in the past. However, it may also make sense for the future, because the growth manufacturing in the U.S. is very focused on highly automated processes which do not add as many jobs as did the manufacturing technologies of the 1950s. Unions used to oppose job-eliminating automation, but they do not do so anymore because the jobs being eliminating by the use of new manufacturing technologies in the United States are jobs that are currently located in China. What might make sense is to focus on customizing products at the retail level as a way to add value in a way that provides skilled employment that is not exported as soon as someone finds an opportunity to arbitrage the international labor market.

Posted by Bob9999 | Report as abusive

The Industrial Revolution did not bring general prosperity until factory workers began getting paid better. This was not brought about by free market forces, but was the result of years of struggle by workers, risking their livelihoods and their lives for better pay and working conditions (and Fordism contributed as well). Somehow, the economy not only adjusted, but prospered under these new realities. That is, up until real pressure started being brought to bear from foreign competition. Human services workers generally do not face foreign competition, and there’s no reason to suppose that raising their compensation would wreak any more long-term damage than when factory workers got a break in the mid-20th century. And as Mr. Kuttner points out, we’d all benefit from improved quality of service.

Posted by Sanity-Monger | Report as abusive

Unskilled work will always pay less. Many of these jobs are only in existence because de-industrialization create a large pool of workers willing to take low pay. The fast food industry is an example. In addition is depends on teens that should be in school.

Posted by Samrch | Report as abusive