Planning Decisions, Inc.

THE BOTTOM LINE FROM CHUCK LAWTON

Growth of the Service Sector

Published Saturday May 17, 2008

Last week I cited the enormous net loss of jobs in Maine’s “goods producing” sector as reason to say that we are entering a new economic era.

Wait a minute, you say. We don’t have to make stuff to have economic growth. We can also sell stuff somebody else makes and provide services. Trade and services are legitimate sources of economic activity. And besides, those are activities that can’t (we hope) be outsourced to China, at least not as easily as golf tees.

Sure enough, Maine has several “growth stars” within the non-goods producing sector. First and foremost is health care and social assistance. Between 1990 and 2006, Maine added approximately 47,000 jobs in hospitals, doctor’s offices, nursing homes and social assistance agencies. This amounted to a growth of 70 percent, far surpassing the national increase of 55 percent. This sector now accounts for 14 percent of all jobs in Maine compared to only 10 percent for the nation as a whole.

A second set of service sector “growth stars” are what I will call specialty services—nine sectors where employment growth in Maine exceeded the rates for their national counterparts. Together, these businesses created nearly 27,000 jobs between 1990 and 2006. This represented a growth of 59 percent, well above the national rate for these sectors of 47 percent.

Real estate and rental and leasing services accounted for about half of this total. Banking accounted for another 3,100 jobs and private household services another 3,100. Thus, about 20,000 of these 27,000 new jobs can be linked in a general way to the demand for Maine land. People want a piece of “Vacationland,” and we’ve created lots of jobs around that desire. Our other specialty service growth stars covered a wide range of activities, from management of companies, to internet service providers, to couriers and messengers, to security brokers to waste management and remediation services.

The third set of non-goods producing growth stars are what I will call the shopping and entertainment industry. Here, another nine sectors produced employment growth of more than 25,000 jobs, a collective growth rate over the period of 30 percent compared to 20 percent for their national counterparts.

Of these jobs, nearly 6,000 were provided by non-store retailers. Clearly, the era of internet shopping has not passed us by, thanks in no small part to the continuing success of L.L. Bean. Miscellaneous store retailers, performing arts and spectator sports, general merchandise stores, hotel, motel and other accommodation providing businesses and museums, historical sites, zoos and parks account for another 12,000 of these new jobs. Clearly, tourism has proven to be a strong element of the growth Maine has achieved. Finally, our love affair with our vehicles. Motor vehicle and parts dealers and gasoline stations provided nearly 4,000 new jobs over the period.

In sum, Maine had nineteen non-goods producing sectors that grew at rates exceeding those of their national counterparts. Together, these enterprises produced nearly 100,000 new jobs between 1990 and 2006. This far exceeds the 27,000 jobs lost over the same period in our “traditional” goods producing sectors.

So why worry? What’s the problem? Why this talk of a new economic era? Maine is apparently adjusting as it always has. Our economy didn’t collapse when we ceased building clipper ships and exporting river ice, why will it now?

Our challenges today are different for three main reasons. The first is social and demographic. Over the past generation, Maine and the nation have witnessed a revolutionary change in the structure of the labor market as women have taken jobs outside the home. From 1950 to 2000, the share of working age Maine women in the labor market more than doubled, rising from 30 percent to 65 percent. Many of the people filling the service sector “growth stars” noted above have been women. This vast internal migration cannot continue. Since 2000, the female labor force participation rate in Maine has actually fallen back to about 60 percent. In short, we won’t be able fill jobs in the next 50 years just by putting people who are already here to work. Our economic challenge today is much more focused on keeping and attracting young people and finding ways to keep older people in the labor force.

The second major difference today is geographic. Most of the job losses in our “traditional” goods producing sectors have been in our rim counties. Most of the job gains in our trade and service “growth stars” have been in southern and coastal Maine. As a result, the relative regional inequities in employment opportunities, income, population growth and the burden of maintaining public infrastructure have increased. This, in turn, has exacerbated the political conflict between long-term investment projects and short-term social assistance programs.

Finally, there is the ever growing dilemma of our greatest “growth star,” health care and social services. One the one hand, this sector has created lots of high skill, high wage jobs, many in precisely the mill towns that have lost so many goods-producing jobs. On the other hand, this sector depends on continued state and federal financing and population growth. As these constraints continue to become more acute, we cannot expect this sector to continue its past growth trend.

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