1

Daniel Felsenstein

Service Sector Employment in Local Economic Growth:

A Job Vacancy Chains Approach

Israeli Regional Science Association, Annual Meeting, Ben Gurion University, Beer Sheva 15th April 2008

2

The Service Sector and Job-Generation: The Perception

• Substantial job-generator – but ‘dead-end’ jobs

• Unlike manf, little prospects for promotion through internal progression

• More unequal wage distribution in services• Not a stimulant for local economic

development

3

A Chain Model of Local Labor Markets

• Assume unemployment and underemployment – slack in labor market

• A new job, if filled by an employed worker, opens up a chain

• Workers move from job to job to improve their welfare

• New perspective on employment ‘multipliers’

4

Horizontal Multipliers

Backward LinkagesSuppliers:30 Indirect Jobs

Light Bulbs Inc.

Forward LinkagesHousehold-serving:20 Induced Jobs

Supermarket Stores

Instrument Plant100 Direct Jobs

SciSource

5

‘Horizontal’ Multipliers

InducedIndirect

Direct

6

Job Chains and Vertical Multipliers

New Job in SciSourceExisting

Similar Job in OptiSourceExisting

Related Job in InstruSource

In-Migrant to LocalArea Ms. Black

Terminates Chain

Job Changer:Mr. Jones

Job Changer:Ms. Dee

Vacancies

7

Job Chains and ‘Vertical’ MultipliersInduced

Chain Termination Job ChainsVacancies

IndirectDirect

8

Three Major Outcome Measures

• Multiplier effects

---expected chain lengths

• Efficiency effects

• Distributional Effects

9

Data• PSID 1987-1993

(heads and spouses only)

• 3500 distinct year-to-year job changes

• 1992 Real average wage gains for job changers

• Data for five earnings classes and 2 broad sector groups: Industry =manf, mining, construction.

Services=transp, comms, wholesale and retail trade, FIRE, personal services, public admin.

10

Origin-Destination Matrix for Industry and Services

Destination

Origin Ind1 Serv1 Ind2 Serv2 Ind3 Serv3 Ind4 Serv4 Ind5 Serv5Ind 1 37.6% 6.6%

Services 1 14.0% 28.6%

Ind 2 18.7% 4.4% 45.4% 5.2%

Services 2 2.1% 22.9% 6.4% 48.1%

Ind 3 5.0% 0.0% 17.9% 2.6%43.9%

1.4%

Services 3 0.0% 4.7% 6.1% 18.6%6.2%

43.9%

Ind 4 0.0% 1.1% 2.8% 0.0%10.7%

1.4%43.2%

4.3%

Services 4 0.0% 2.2% 0.0% 0.9%3.5%

18.6%10.0%

40.6%

Ind 5 0.0% 0.0% 0.0% 0.0%1.6%

0.6%6.6%

1.2% 29.3% 1.7%

Services 5 0.0% 0.0% 0.0% 0.5%0.5%

1.8%4.5%

13.0% 9.1% 32.0%

Unemployed 3.9% 2.4% 4.4% 3.6%16.0%

7.4%21.4%

13.6% 35.1% 22.5%

Out of labor force 1.7% 5.3% 3.4% 3.9% 3.2% 9.1% 7.2% 16.0% 13.5% 34.3%

In-Migrant 17.1% 21.8% 13.6% 16.5%14.3%

15.8%7.2%

11.2% 13.0% 9.6%

Column Sum 100.0% 100.0% 100.0% 100.0%100.0%

100.0%100.0%

100.0% 100.0% 100.0%

11

Origin Job Group

Multiplier Matrix:Initial New Job: Destination Job Group

Job Multipliers Ind1 Serv1 Ind2 Serv2 Ind3 Serv3 Ind4 Serv4 Ind5 Serv5

Ind 1 1.64 0.15

Services 1 0.32 1.43

Ind 2 0.61 0.23 1.85 0.19

Services 2 0.28 0.67 0.23 1.95

Ind 3 0.36 0.13 0.61 0.17 1.79 0.04

Services 3 0.23 0.38 0.35 0.69 0.20 1.79

Ind 4 0.12 0.09 0.23 0.08 0.36 0.10 1.78 0.13

Services 4 0.13 0.21 0.19 0.27 0.23 0.58 0.30 1.71

Ind 5 0.02 0.02 0.04 0.02 0.08 0.04 0.18 0.05 1.42 0.03Services 5 0.05 0.06 0.07 0.09 0.10 0.17 0.20 0.34 0.19 1.48

Total Job Multiplier 3.76 3.36 3.57 3.45 2.76 2.72 2.46 2.23 1.61 1.51

Industry Multip 2.75 0.62 2.74 0.45 2.23 0.18 1.96 0.18 1.42 0.03

Services Multip 1.01 2.74 0.84 3.00 0.52 2.54 0.50 2.05 0.19 1.48

12

Industry versus Services: Chain length

• Recruiting the Non-Employed: Industry takes from unemployed. Services take from outside the labor force.

• Job multipliers; very similar. Decline from high to low wage groups.

• Internalization; both industry and services have much action on the diagonal. Use of internal promotion ladders?

13

Industry versus Services (cont).

• Cross-sector job vacancy multipliers. Larger from industry to services, but still considerable in both directions. Blurring the industry-services divide ?

14

Efficiency Effects

V/w

Wage Group Indust Services

1 $25.50-$40.0 0.41 0.43

2 $16.40-$25.50 0.44 0.41

3 $10.50-$16.40 0.55 0.56

4 $6.70-$10.50 0.62 0.62

5 $4.25-$6.70 0.65 0.69

15

Industry versus Services: Efficiency Gains

• For a given wage group, there is very little difference between industry and services in V/w.

• But wage distribution much more unequal in service sector.

• Service sector firms weighted towards high-end jobs, less efficient at generating welfare

16

Distributional EffectsWage Group of Initial New Job

1 2 3 4 5

V/w: Indust 0.41 0.44 0.55 0.62 0.65

Services 0.43 0.41 0.56 0.62 0.69

Share to Job Changes: Indust 23.5 18.1 13.5 14.9 0

Services 30.6 33.2 41.2 53.4 0

$ per year - Low: Indust 350 535 846 1,797 7,201

Services 411 548 1,001 1,916 7,201

$ per year – Lowest: Indust 3,267 4,659 5,720 10,535 7,201

Services 5,265 4,111 6,909 10,597 7,201

17

Industry versus Services: Distributional Impacts

• For a given wage group, little difference between industry and services on lowest wage groups (4 and 5), ie both contribute equally little to trickle-down.

• No evidence of more internal promotion ladders in industry.

• Industry only promotes trickle-down due to its more concentrated wage distribution

18

Conclusions

• Industry and Services recruit from outside the labor force in very different ways, BUT:

• Job multipliers of similar length

• Significant cross-sector multipliers

• Little difference in welfare effects

• Little difference in ‘trickle-down’ effects

• Conclusion; increasingly blurry industry-services divide.