1. 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 15 th April 2008

2. 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. 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. 4 Horizontal Multipliers Backward Linkages Suppliers: 30 Indirect Jobs Light Bulbs Inc. Forward Linkages Household-serving: 20 Induced Jobs Supermarket Stores Instrument Plant 100 Direct Jobs SciSource

5. 5 ‘Horizontal’ Multipliers Induced Indirect Direct

6. 6 Job Chains and Vertical Multipliers New Job in SciSource Existing Similar Job in OptiSource Existing Related Job in InstruSource In-Migrant to Local Area Ms. Black Terminates Chain Job Changer: Mr. Jones Job Changer: Ms. Dee Vacancies

7. 7 Job Chains and ‘Vertical’ Multipliers Induced Chain TerminationJob Chains Vacancies Indirect Direct

8. 8 Three Major Outcome Measures Multiplier effects ---expected chain lengths Efficiency effects Distributional Effects

9. 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. 10 Origin-Destination Matrix for Industry and Services Destination OriginInd1Serv1Ind2Serv2Ind3Serv3Ind4Serv4Ind5Serv5 Ind 137.6%6.6% Services 114.0%28.6% Ind 218.7%4.4%45.4%5.2% Services 22.1%22.9%6.4%48.1% Ind 35.0%0.0%17.9%2.6%43.9%1.4% Services 30.0%4.7%6.1%18.6%6.2%43.9% Ind 40.0%1.1%2.8%0.0%10.7%1.4%43.2%4.3% Services 40.0%2.2%0.0%0.9%3.5%18.6%10.0%40.6% Ind 50.0% 1.6%0.6%6.6%1.2%29.3%1.7% Services 50.0% 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 %

11. 11 Origin Job Group Multiplier Matrix: Initial New Job: Destination Job Group Job Multipliers Ind1Serv1Ind2Serv2Ind3Serv3Ind4Serv4Ind5Serv5 Ind 11.640.15 Services 10.321.43 Ind 20.610.231.850.19 Services 20.280.670.231.95 Ind 30.360.130.610.171.790.04 Services 30.230.380.350.690.201.79 Ind 40.120.090.230.080.360.101.780.13 Services 40.130.210.190.270.230.580.301.71 Ind 50.02 0.040.020.080.040.180.051.420.03 Services 50.050.060.070.090.100.170.200.340.191.48 Total Job Multiplier 3.763.363.573.452.762.722.462.231.611.51 Industry Multip 2.750.622.740.452.230.181.960.181.420.03 Services Multip 1.012.740.843.000.522.540.502.050.191.48

12. 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. 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. 14 Efficiency Effects V/w Wage GroupIndustServices 1$25.50-$40.00.410.43 2$16.40-$25.500.440.41 3$10.50-$16.400.550.56 4$6.70-$10.500.62 5$4.25-$6.700.650.69

15. 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. 16 Distributional Effects Wage Group of Initial New Job 12345 V/w:Indust0.410.440.550.620.65 Services0.430.410.560.620.69 Share to Job Changes: Indust23.518.113.514.90 Services30.633.241.253.40 $ per year - Low:Indust3505358461,7977,201 Services4115481,0011,9167,201 $ per year – Lowest:Indust3,2674,6595,72010,5357,201 Services5,2654,1116,90910,5977,201

17. 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. 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.