Transition Complete : Service Jobs Dominate the Economy

When Far Eastern competition drove Alan Ungar’s clothing factory out of business in the late 1970s, the Los Angeles native was forced to examine his life anew: “I had three priorities,” he recalls. “One was to be able to play racquetball every morning. The second was not to have any inventory. The third was to be able to take time off when I wanted time off--and I’ve gotten all of them.”

Ungar, 51, got his wishes by making a jarring about-face in careers. He abandoned the apparel industry altogether, went to school and became a financial planner.

He says now that he stumbled into the field, but actually his choice was influenced by forces that are reshaping the nature of opportunity in the United States. In linking his future to consulting rather than manufacturing, Ungar responded to a reality of America in the late-20th Century: The much-heralded service economy has arrived.

Just as most of the nation’s work force once had to adjust from tilling the soil to toiling in factories, a similarly wrenching change is now complete. Some 90% of today’s newly created jobs are in the services, where knowledge and information--not steel or automobiles or clothing--are the most highly prized commodities.

Ungar’s father, for example, produced soldering irons in Culver City and marketed them across the country. Ungar followed him into manufacturing, taking pride in making quality scarfs at his own local factory for 15 years. But now he earns a six-figure income “with a lot less headaches” in his Woodland Hills office by advising people on how to invest their money to meet their goals.

Approval Not Universal

Under way for more than half a century, the transition to a service economy has reached the point where fully three-fourths of today’s 113 million employed persons are classified as working in the service sector, a potpourri of jobs that includes dishwashers, store clerks and nursing home attendants--but also doctors, lawyers, bankers, computer programmers and even government bureaucrats. Essentially everybody who is not in manufacturing, agriculture, construction or mining is a service worker.

The phenomenon has hardly met with universal approval. Some economists and political leaders warn that America’s future will be in jeopardy if employment in the great industries that helped make this the richest nation on earth is replaced by service jobs that are low on wages and low on dignity. Others, however, insist the service boom offers superb opportunities of its own.

Whatever the view, the trend toward a service economy appears inevitable even as manufacturing becomes more efficient and more sophisticated, requiring fewer employees but ever more services.

While debate rages about the quality of life that Americans will be able to enjoy in the service-oriented world, important points already can be made:

--Services and manufacturing will continue to rely on each other. Those who work in services, such as computer specialists, can help make manufacturing more productive. Manufacturing also stimulates the demand for services: It buys a range of them--including engineering, finance, accounting, insurance, design, transportation and waste disposal. And it can propel the demand for even more, such as hotels and financial advice, by enhancing the overall wealth of society.

“Services are complements--not substitutes or successors--to manufacturing,” argue Stephen S. Cohen and John Zysman in their book “Manufacturing Matters: the Myth of the Post-Industrial Economy.”

--Education will play a critical role. Those with a good one can do better than ever before. Those with a poor one are likely to do worse. Those able to manage people, adapt to technological change, think analytically and communicate effectively will maintain a high standard of living. Those lacking such skills risk a lifetime of hardship, in light of increased automation and movement of low-skill jobs to other countries.

--The service economy has emerged during an extraordinary period of stagnating wages, but cannot be blamed for it. Productivity is the key. Gains are needed in order for Americans to resume their long-accustomed progress in income over inflation. But such gains have been harder to achieve in services than in manufacturing.

--Despite skeptics, who worry about a generation of hamburger-flippers and others who toil at the minimum wage, people in service jobs can start at the bottom, move up the ladder and into the middle class.

Job Creation

Since 1970, the work force has expanded to accommodate another 33 million people, including much of the post-World War II baby boom generation and an influx of women and immigrants--an economic tour de force that has left much of the world in awe. Some 13 million of these jobs were spawned since the current recovery began late in 1982. Services were responsible for the bulk of them. The result has been impressive: Today, almost two-thirds of American adults are in the work force--the largest proportion in history.

“We’ve had a tremendous experience in job creation,” said Janet L. Norwood, commissioner of the Bureau of Labor Statistics. “The Europeans consider it a miracle.”

The environment for jobs is one of relentless, accelerating change. Every year, one out of eight jobs in the United States is newly created, and one out of nine is eliminated, as employers respond to shifts in technology, consumer demand and competitive realities.

As recently as 1950, for example, manufacturing accounted for 34% of all employment outside the farm. That share plummeted, however, to 19% as of this past July. Service-oriented jobs, meanwhile, rose from 59% to 76% over the same period.

Many of the service jobs are low-wage, such as delivering pizzas or attending the elderly and disabled. Between 1983 and 1986, for example, 351,000 jobs were added in these groups, according to the Bureau of Labor Statistics. But the fastest-growing jobs are in the professional, administrative and technical areas--all of which pay more than the average. Almost 3 million jobs were added in the professional-managerial category alone during those three years.

“We’re gaining good jobs, as well as what some people call low-wage jobs,” Norwood continued. “It’s a very mixed picture.”

One thing about the picture is clear: The service economy is not sheltered from foreign competition. In many cases, its workers are no more secure than factory employees, unless they provide a skill or a wage that justifies their employment. Whatever the task, in today’s competitive, global economy, employers look harder than ever at how to accomplish it as cheaply as possible.

Consider what American Airlines is doing for its enormous data-storage needs. Every morning, a DC-10 jetliner, carrying 1,500 pounds of ticket stubs, leaves Kennedy airport in New York for the Caribbean island of Barbados. The tickets are then hauled to a facility where 300 islanders type the travel data into computer terminals. Within a day, a satellite relays the information back to the airline’s computer center in Tulsa, Okla.

It wasn’t always this way: Until late 1983 the key-punching was performed by airline employees in Tulsa--but at twice the expense. American is so enthusiastic about the venture that it opened up a new, 150-employee facility in the Dominican Republic in May and is marketing the service to insurance companies, hospitals and others.

“I don’t think anybody knows how big the market is,” said Joe Stroop, an American spokesman, adding that the airline offered jobs to its displaced Tulsa workers. “But it’s in the billions and billions of dollars.”

William Johnston, a researcher with the Hudson Institute, maintains that workers who do not have the basic technological skills and literacy to be competitive are going to find the economy less forgiving than ever: “The haves and have-nots in the year 2000 are going to be defined by their skills,” he predicts. “It’s going to be the technologically able versus the technologically unable.”

To be sure, many enjoy great security in the service economy, due to their interpersonal skills, their ability to adapt, or the simple fact that their jobs can’t be exported. Rewards for such people, who represent a growing share of the population, are handsome.

The experience of E. Thomas Dowling, of Laguna Niguel, belies the myth that the service economy is fraught with dead-end kitchen jobs. When Dowling went to college in Connecticut in the 1960s, he did various chores in the dining hall for pocket money--the sort of food-service work often derided as leading nowhere. But upon graduation, his restaurant employer lured the psychology major away from his chosen field into a management-trainee program.

Today, Dowling, 43, is a regional vice president for ARA Services, a services behemoth that has 115,000 employees, revenue of $3.75 billion and operations that include food service for corporations, colleges and airports, vending machines, nursing homes, trucking, magazine and book distribution, hospital emergency rooms and uniform rental--to name a partial list.

“If somebody can manage people well, and get them to provide the service and quality that customers want, that person is going to do very well,” he maintains.

Dowling, of course, had advantages--a college education and work experience to name just two. At the Abram Friedman Occupational Center, a windowless, 10-story building that looms near the Santa Monica Freeway in downtown Los Angeles, not everyone is so endowed.

46 Languages

Many are immigrants--they spoke 46 different languages at last count--and others who have had problems finishing school and moving ahead. In the course of a year, 12,000 adults take at least one course, in addition to 4,000 other students who also go to high school.

Can the new economy find a comfortable perch for people like Carlos Jimenez, a dark-eyed, slender native of Ecuador who followed two of his brothers to Los Angeles in search of a better life five years ago? Jimenez is among thousands of immigrants seeking legal status in the United States, attracted by its history of economic opportunity.

In a room outside Abram Friedman’s electronics shop, Jimenez, who used a pseudonym, recalled that when he arrived in Los Angeles, he found a job washing dishes in a Marina Del Rey restaurant for $4.50 an hour. But his ambitions changed as he witnessed the parade of well-heeled restaurant customers over the years: “Now I’m the cook,” he said. “Is that it? That’s all I can be in this restaurant. I don’t want to be a cook for all my life. That’s what I said to myself. I want something decent. My dream is electronics, computers.”

To realize the dream, Jimenez, 23, has taken courses during the day, while continuing to work at the restaurant at night. He has applied for legal status in the country and intends to enroll in college. His wife, a native of Guadalajara, will try to support him with her data processing job, while his mother-in-law minds the baby.

“There is opportunity in the U.S., certainly,” said Jimenez, who wants his son, now 5 months old, to grow up in a room of his own--unlike the father’s early experience of crowding into a room with four brothers and sisters. “If somebody wants to improve, this is the place you should be.”

Education, of course, always has been important. In a world of rapid change, it is more important than ever.

At the most basic level, workers who cannot read have a grave disadvantage when a new process is accompanied by written instructions. Similarly, when simple jobs are replaced by machines, workers can lose out unless they’re qualified for the more sophisticated task of maintaining the equipment.

Ultimately, the long-term health of many service industries--including such successful exporters as insurance, airlines, business consulting and hotels--depends on a continued infusion of employees who have the analytical skills and drive to compete with their foreign rivals.

Critics of the U.S. education system warn that failure to improve could one day drag the country down to second-class status: “Either we greatly upgrade our educational system to be first in the world--or we’ll find that other nations will take the top-end jobs,” warned Burt Nanus, a management professor and director of the Center for Futures Research at the University of Southern California.

Those without education pay the price. A dilemma of the emerging economy is that many of the highest-paying new jobs, including sophisticated business and financial services, are located in urban areas amid populations of minority members who aren’t trained to fill them. Meanwhile, pointed out John D. Kasarda, chairman of the sociology department at the University of North Carolina, “They’re facing a serious labor-force squeeze in the suburbs for entry level workers.”

The suburban squeeze is of little help to Beatriz Ruiz, who takes classes at Abram Friedman. The Colombia native, 57, has had some training in electronics, but frets that her 1971 Chevrolet Malibu is not up to the task of commuting to firms in the San Fernando Valley. “If you have to drive an hour for $3.35, you can’t live,” she said.

Ruiz has been in and out of work for 10 years, since she got laid off by the company that employed her to listen for imperfections in musical records under production. Now she is taking a course in fiber-optic design, an increasingly popular lighting technology used in advertising and other forms of display.

She hopes it will net her a job, while she worries that her meager savings won’t last forever: “I’d rather die than live in the streets.”

Lanny M. Nelms, principal of the vocational school, looks at such students as Ruiz and worries that opportunities are not keeping up with the inexorable needs of the growing, often poorly educated, population: “We’re excluding more and more people from being able to join the middle class.”

The same fear is expressed by some economists. The question of whether America’s standard of living is heading downhill flared into controversy last December when a congressional panel published the study, “The Great American Job Machine,” by Profs. Barry Bluestone of the University of Massachusetts and Bennett Harrison of the Massachusetts Institute of Technology.

Their controversial finding: a striking increase in the percentage of new jobs that paid bottom-level wages, and a drop in new, high-wage jobs. “This all began much earlier than (the Reagan Administration)--and it began because international competition caught up with us,” Bluestone maintained in an interview.

He cited two-tier wage contracts in which newcomers are paid on a sharply lower scale than veterans, and the use of cheap overseas suppliers and part-time and temporary labor as belt-tightening strategies that “have played a role in reducing the number of middle- and high-wage jobs.”

Questions Persist

The research has been criticized for a variety of reasons that include failing to account for the natural ups and downs of the economy and underestimating the impact of part-time jobs on overall wage statistics.

But questions persist about whether the emerging economy is one that spawns a lot of jobs at the minimum-wage level and a lot of jobs at the high end, with a decline in the middle. Citing Census Bureau figures, economist Roger H. Fulton noted a 9% drop in the share of households with total incomes of $20,000 to $50,000 between 1973 and 1985, with corresponding gains at the high and low ends.

Fulton, research director for A. Gary Shilling & Co. in New York, blamed the apparent squeeze of middle-level jobs on the loss of factory and other blue-collar employment in recent years. He added that in today’s more competitive world, companies are willing to pay more for valued managers. In addition, many companies have slashed the ranks of middle management; computers increasingly have supplanted people who used to collect and organize data.

The possibility of an eroding middle raises fears that opportunities to enter the economic mainstream are getting harder to come by: “If you’re at the bottom, and the middle rung is missing, you have a hard time making that leap,” worries Daniel J. B. Mitchell, director of UCLA’s Institute of Industrial Relations.

But the case of the shrinking middle class is far from proven. Broad social changes in life style, household structure and demographics all influence the numbers. These include the growing number of retirees--who would be expected to have reduced incomes--and an increase in households headed by single women, a group with its own set of financial problems.

“When it all comes out in the wash, you just can’t find any evidence of a general downward trend in the number of people in the middle class,” said Bruce Bartlett, an economist with the conservative Heritage Foundation in Washington.

What’s more, certain trends in the job market suggest that opportunities to enter the mainstream are alive and well. These include an expanding need for technical specialists in such areas as computers, and long-term growth prospects in the health care industry and other fields.

“There are a whole range of middle-class service sector jobs that haven’t been fully tapped and explored,” said Steven R. Malin, an economist with the Conference Board in New York. “My secretary can make (information) technology jump and do cartwheels for her--and she gets paid more than some of the economists around here.”

Changing Needs

The experience at Transamerica Life Cos. vividly shows how changing needs can spark new opportunities at the middle levels. “We found a gap between people who knew the insurance business and people who knew the technical (computer) side,” recalled Barbara McNamara, a senior recruiter with the Los Angeles firm. Within the last several years, she said, the company has developed 80 jobs that require both kinds of knowledge and that typically pay “in the thirties.”

Critics of the service economy also point out that average wages have stagnated since the early 1970s--a lack of progress against inflation that is unprecedented since World War II. Actually, this trend goes far beyond the services, and has complex roots.

The maturing baby boom generation provides part of the explanation. Starting in the 1960s and increasing throughout the 1970s, members of this group that totals more than 70 million have pressured average wages downward as large numbers started their careers at junior levels and competed for existing jobs. Now the situation is changing, however. As the baby boom climbs the career ladder, its members could one day create a glut at the senior levels, pressuring average wages upward.

But even this demographic explosion does not explain the whole story. Wages have stagnated for workers at all ages. Economist Frank Levy, analyzing the fortunes of 40-year-old male employees, found that between 1973 and 1983, the group on average lost more than $4,200 in real annual wages (in 1986 dollars). Gains have been made since then, but not enough to exceed the 1973 level.

As long as pay and productivity climbed steadily during the 1950s and 1960s, Levy said, successive generations of workers profited from higher standards of living and the prospect of upward mobility. But “suddenly, when real wages stopped rising, things that looked relatively easy looked more difficult,” said the University of Maryland professor and author of the new book, “Dollars and Dreams: The Changing American Income Distribution.”

Economists don’t agree on exactly what has happened, although the oil shocks and subsequent inflation, recessions and competitive inroads by other countries all have taken a toll. They do agree that there is a cure, however: better productivity.

Put another way, the more efficient that U.S. companies are at producing goods and services, the greater the standard of living Americans will enjoy. “If we can produce more, more cheaply, the country as a whole should be better off,” Norwood said.

Productivity presents special problems for services, though. It’s easy to measure what a factory produces--and how efficiently it does so. By contrast, the time and quality that go into a service do not always lend themselves to such calculations. “How do you increase productivity on the campus?” asks William R. Allen, an economics professor at UCLA. “You can teach bigger classes. You can teach more classes--but the quality almost certainly will fall.”

Looking at services in general, John W. Kendrick, an economics professor at George Washington University and an authority on productivity, said progress will be aided by more efficient computers and by workers who are increasingly sophisticated at taking advantage of such technology: “I think we’ll get gradual, further improvements,” he said.

By contrast, recent productivity improvements in manufacturing have been impressive. There is a lesson in this: Even in an economy where services dominate the employment statistics, manufacturing continues to play a key role in preserving America’s well-being.

SERVICE EMPLOYMENT

1986 employment in selected service job categories. Numbers are for full-time wage and salary workers.

Employment Job In thousands Accountants and auditors 1,083 Physicians 219 Nurses 1,349 College teachers 443 Teachers (except college) 2,884 Librarians 139 Psychologists 100 Financial managers 396 Engineers 1,644 Dancers 5 Firefighters 209 Technicians and support occupations 2,821 Sales 7,395 Housekeepers and butlers 17 Waiters and waitresses 576 Cooks 856 Hairdressers and cosmetologists 274 Mechanics and repair 3,723 Bus drivers 201 Lawyers 314

Source: Bureau of Labor Statistics