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Role of Services in the U.S. Economy FAYE DUCHIN Finally, we call "tertiary" products or services like the artist's tapestry, justice, education, or a man's haircut which have the two properties of (1) undergoing very little technical progress Andre) facing steeply increasing consumer demand, with no sign of its leveling off in any country. J. FOURASTIE Strategies for improving the performance of the U. S. economy sometimes accord particular importance to the distinction between manufacturing activ- ities and the production of services. One view is that the continued growth of services sectors represents a natural progression out of manufacturing into the postindustrial age run by computer-expert information workers. Accord- ing to this view, as other countries take over the dirty work of manufacturing, the U.S. needs to create markets for information-based services and act energetically to overcome formidable barriers to their international exchange so that the U.S. can specialize in their production and distribution. A different perspective is that a strong manufacturing base is indispensable for the nation as a whole and that its neglect has been a leading cause of present economic problems. Proponents are likely to favor investment in manufacturing research and development, modernization of production fa- cilities, management reorganization, and other ways to reduce the cost and improve the quality of U.S. manufactured goods. Although they generally recognize the importance of also investing in at least a small set of "high- tech" services, they might characterize most services as intrinsically labor- intensive consumer items (such as concerts and haircuts) or as representing 76

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ROLE OF SERVICES IN THE U.S. ECONOlklY 77 a changing division of labor ("taking in each other's wash") that does little to augment national wealth. That both of these views are plausible is explained in large part by the fact that the services sectors, which today employ over 70 percent of the U.S. labor force, are extremely diverse. The distinction between all manu- facturi~g on the one hand and all services on the other cannot provide even a general basis for operational industrial and trade strategies. In fact, it is not the distinction between manufacturing and services but their detailed interdependence that is investigated in this chaper. In the following sections, the nature of services activities is examined. Then a quantitative analysis of the relationships among services and manu- facturing sectors is presented, followed, in conclusion, by some policy and strategy implications of the analysis. THE NATURE OF SERVICES The work of artists and barbers not to mention magicians, athletes, clergy, and chiropractors is often evoked, even by technical analysts, to distinguish the delivery of services from the production of physical goods. Such workers symbolize the individual creativity, judgment, skill, and phys- ical presence for which machines presumably cannot substitute. Furthermore, the outcome of much of this labor provides uplift and healing, the demand for which is likely to expand rather than diminish as people's material needs are increasingly satisfied. These attributes are associated with the services sectors. The computer's ability to play a role in the production of art and music has already been demonstrated; and various recording, transmitting, and playback technologies enable a single physical performance cultural, ath- letic, and most recently, religious to be experienced repeatedly by audi- ences of unlimited size around the globe. These technologies will become increasingly refined and increasingly prevalent as will, for example, medical diagnostic expert systems to supplement the judgment of even the most distinguished specialists. Although today's sheepshearing robots are not promising as prototypes for the displacement of barbers, it is clear that new technology transforms not only routine but also highly individualistic work. Besides the fact that their work will be affected by new technologies, artists, barbers, and the others are hardly typical services sector employees. They account for only a small portion of the labor force even the services sector labor force most of whom work in offices or stores with wordpro- cessors, telephones, computers, merchandise, and customers, engaging in relatively structured transactions. The importance of the image of the artist or the barber is not that it is a realistic portrayal of work in services sectors but rather that it succeeds in isolating those functions that are the poorest

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78 FAYE DUCHIN candidates for routinization, and therefore for automation, and in associating these abstract functions in an intuitively convincing way with concrete, oc- cupational categories (e. g., creativity with the artist, a simple but unstructured task environment with the barber). It is the nature of automation that an increasing portion of work time will be devoted to such functions, in many manufacturing and services sector jobs, as the more routine work functions are automated. The other colorful characterization of services work, taking in each other's wash, alerts us to the fundamental importance of the changing division of labor between household and marketplace. Has the number of services jobs increased because women enter the labor force mainly to work in laundries and fast-food restaurants and to drive school buses, instead of doing the washing and cooking at home and chauffeuring their own children? This is surely true to some degree, just as businesses now buy certain services they would once have performed for themselves. The extent of this phenomenon and its implications have never been systematically analyzed. This important question is addressed later in the context of constructing an appropriate conceptual framework. THE USE OF SERVICES IN PRODUCTION AND CONSUMPTION The diversity of services is illustrated by the 18 services sectors identified in Table 1, which shows the proportion of each sector's output absorbed in production. ~ The remaining proportion, not used in production, is delivered mainly to public and private consumption.2 Three categories of services can be distinguished: those used mainly in production (I), those delivered about equally to production and for public and private consumption (II), and the remainder (III) serving primaily final consumers. Four of the services sell primarily to businesses: Radio and TV Broadcasting, Business Services, Utilities, and Transportation and Warehousing; this concentration is projected to continue to increase for Business Services and Utilities by 1990. Ten more sectors deliver mainly to consumers, especially Private Education and Health and Hospital Services that are used almost exclusively by indi- viduals in their personal capacities. The remaining five sectors serve pro- duction and consumption about evenly: Wholesale Trade, Insurance, Communications, Government Postal Services, and Finance. The size and importance of these five sectors confounds any simple dichotomy between producers' and consumers' services. Each of these still broadly defined sectors includes numerous individual services, and a more detailed breakdown for Business Services and for Trans- portation and Warehousing is illustrated in Table 2. Of the 21 subcategories identified, all but four still delivered more than 60 percent of their output for use in production.

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ROLE OFSERVICESINTlIEU.S.ECONOMY 79 TABLE 1 Percentage of Services Sector Outputs Absorbed in Production in Benchmark Years from 1963 to 1990 Category Sectora 1963 1967 1972 1977 l99oD 69 Radio/TV Broadcasting 97 99 97 97 97 77 Business ServicesC 76 79 81 81 92 70 Utilities 61 62 63 68 71 67 Transportation; Warehousing Services 66 65 64 64 63 II 71 Wholesale Trade 52 51 54 55 56 74 Insurance 53 50 49 53 52 68 CommunicationsC (except 55 55 55 48 46 no. 69) 55 54 48 51 85 Government Postal 52 Services 40 37 44 45 42 73 FinanceC III 79 Auto Repair and Services 37 43 43 41 44 80 Amusements 33 36 31 37 37 75 Real Estate 33 34 33 34 34 76 Hotels; Personal and Repair ServicesC 16 20 29 34 39 78 Eating and Dr~nl~ing Places 26 26 22 21 28 84 Nonprofit Organizations 12 14 16 19 20 72 Retail Trade 12 11 10 8 8 83 Educational ServicesC (Private) 1 1 5 7 8 82 Health ServicesC (except no. 81) 4 6 4 4 4 81 Hospitals 0 0 0 0 0 NOTE: Horizontal rows divide the services roughly into three categories: (I) those delivered mainly to businesses; (II) those delivering about half their output to businesses, half to consumers; and (III) those delivering mainly to consumers. a Services sectors are ordered by decreasing percentages in 1977. bThis column is not projected directly but is the result of computations involving assumptions about technological change. CIndicates the six services whose use in production grew fastest between 1963 and 1977 (see Table 3). SOURCE: Sector scheme and numbering correspond to those used in Leontief and Duchin (1986), which is also the source of the data base including the projections for 1990 (Institute for Economic Analysis data base). Sectors are defined on an industry basis. The original sources of the historical data are the U.S. Department of Commerce, Bureau of Economic Analysis and Bureau of Labor Statistics.

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80 FAYE DUCHIN TABLE 2 Output and Use in Production of Selected Detailed Services in 1977 (expressed in 1977 prices) Output Use in Sector ($ million) Production (%) 67a Transportation; Warehousing 128,264 61 Railroads and related services 22,462 74 Local passenger transportation 10,899 31 Motor freight transportation and warehousing 47,141 67 Water transportation 16,873 53 Air transportation 24,846 93 Pipelines 3,346 91 Freight forwarders 969 86 Arrangement of passenger transportation 1,727 90 77b Business Services 161,969 81 Miscellaneous repair shops 10,262 86 Services to buildings 5,260 80 Personnel supply 5,035 68 Computer and data processing 15,395 84 Consulting and related 13,934 66 Detective and protective 3,008 100 Equipment leasing 9,850 92 Photographic and related 3,744 51 Other business services 9,037 93 Advertising 36,292 97 Legal 20,512 44 Engineering and related 16,345 90 Accounting and related 13,298 85 aInstitute of Analysis sector 67 corresponds to Bureau of Economic Analysis (BEA) sectors 65.0100-65.0702. bInstitute of Analysis sector 77 corresponds to BEA sectors 73.0101-73.0303. SOURCE: This table reports commodity output from the Bureau of Economic Analysis, U.S. Department of Commerce 1984, Table 1. (Other tables in this paper describe industry output.) Real growth rates of services sector outputs for 1963-1977 and projections for 1977-1990 are shown in Table 3 along with the growth of use in pro- duction alone. A comparison of Tables 3 and 1 shows that the services whose use in production grew fastest between 1963 and 1977 are those that deliver essentially to households: Private Education, Hotels and Personal and Repair Services, and Health Services. Payments for educational services by the private sector are projected to grow more slowly through 1990 because they are supplemented on a large scale by the in-house provision of services, accompanied by purchases of new products and services such as instructional television and computer-based instructional hardware or software (sectors 87 and 88 in Leontief and Duchin, 1986), which are not discussed here. The fast-growing business purchases of Hotels and Personal and Repair Services are essentially confined to hotels, laundry, and electrical repairs. The other

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82 FAYE DUCHIN services whose use in production and consumption grew fastest are Com- munications, Business Services, and Finance. THE REQUIREMENTS FOR MANUFACTURED GOODS IN THE PRODUCTION OF SERVICES A large assortment of manufactured inputs and raw materials are absorbed by the services sectors, some in only small quantities. Because of the highly developed division of labor, the links between these inputs and the services outputs are often indirect; for example, most of the processed metals required for the provision of Transportation Services are purchased and used in the sectors that produce the transportation equipment that is sold to establishments providing Transportation Services, whereas these establishments purchase little metal directly on their own account. In this chapter the total (i.e., direct plus indirect) input requirements for the delivery of services will be dis- cussed.3 The economically most important total requirements to deliver $1,000 worth of Transportation Services, Communications Services, Insurance, Business Services, and Health Care in 1977 are shown in Table 4. Reading down the first column, for example, shows that significant amounts of Re- fined Petroleum ($127), Petroleum ($103),4 Business Services ($67), and Motor Vehicles ($66) had to be produced (or imported) to deliver $1,000 of Transportation and Warehousing Services in 1977. The $1,160 of required Transportation and Warehousing services includes the $l ,000 worth delivered to final users as well as $160 worth of output absorbed directly and indirectly, including in the production of the petroleum, motor vehicles, and so forth. The Insurance sector stands out among the various services because it requires relatively small amounts of structures, energy, and transportation, and no special-purpose capital equipment. The major inputs are labor, paper, and assorted services. At the other extreme is the Transportation and Ware- housing sector which, in addition to large energy requirements, requires a sufficiently large amount of transportation equipment for its indirect require- ments of both ferrous and nonferrous metals to be significant: total require- ments include $40 of steel versus only $10 of paper. Table 5 has the same fount as Table 4 and shows the corresponding growth rates between 1963 and 1977.5 Because all production levels are evaluated in constant prices, these growth rates represent actual changes in the quantities of goods and services required and are not confounded by changes in their prices. Of the ten largest requirements for the delivery of $1,000 worth of In- surance (from Table 4), only the major services inputs grew between 1963 and 1977; all the others declined. In the case of Communications Services, falling requirements for Structures, Energy, Transportation, Paper, Metals,

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ROLE OF SER VICES Ill TlIE U.S. ECONOAI Y ~3 and even for most services were partly offset by increased use of Commu- nications Equipment and Business Services. Transportation Services, Business Services, and Health Care all show significant increases in virtually all of the important requirements except labor. In the latter two cases it is reasonable to interpret these increases as a change in the nature of the services that is not reflected in the price deflators. Some of the greatest increases are experienced in services inputs: Commu- nications, Wholesale Trade, Finance, Business Services, and Insurance. We can conclude that the services sectors make intensive use of buildings, energy, and paper; they also rely on the materials-processing sectors for transportation equipment and special-purpose machinery. Aside from refined petroleum and papermaking, dependence on the chemical sectors is mainly for pharmaceuticals. Examination of the largest requirements does not reveal a systematic increase or decrease in the changing use of manufactured inputs, although it will be important to follow up this analysis with an investigation of the implications of ongoing computerization for the use of materials inputs. THE IMPORTANCE OF SERVICES INPUTS FOR MANUFACTURING The importance of purchased services for the delivery of manufactured goods can now be examined. Four manufacturing and four services sectors, representative of the range of production characteristics of manufacturing and services sectors, are compared in Table 6 with respect to their use of selected services in 1977. Transportation and Warehousing Services, Utili- ties, and Wholesale Trade were used more intensively in the delivery of all manufactured goods than in the delivery of any of the services, whereas Communications Services, Finance, Insurance, and Government Postal Ser- vices appear to be equally important in the production of goods and services. Changes between 1963 and 1977 in the requirements for these services are shown in Table 7. The most striking findings in this table are the nearly sixfold increase in the use of insurance coverage to provide a fixed quantity (i.e., that which could be purchased in 1977 for $1,000 in the prices of 1979) of health care services and the reduction, by similar orders of magnitude, in requirements for all of the services shown in the table in order to deliver a given quantity of computer capability. The former reflects mainly social changes, while the latter results from dramatic advances in production tech- nology and in the scale of production of electronic components and com- puters. It turns out that a similar magnitude of increase occurred in the purchase of Business Services for the provision of Agricultural Services. According to Table 7, the use of Insurance in the other sectors has not changed much per unit of delivered output, and the use of Government Postal Services declined noticeably in some, and increased in other, sectors. By and large, however, services inputs have increased.

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9o FAYE DUCHI1!7 Significant findings about the most important users of eight of the services sectors are highlighted in the next two tables. One finding is that these services can be divided into two groups: the first (shown in Table 8) is characterized in part by a significantly larger dollar volume of output (see Table 3) and a significantly larger average use by other sectors per dollar of their deliveries (compare Tables 8 and 9) than the second. Deliveries of nondurable manufactured goods and processed materials ac- count for the largest interindustry requirements of Transportation Services, Utilities, and Wholesale Trade. For example, Table 8 shows that delivery of $1,000 worth of Paper and Paper Products in 1977 required $103 of Transportation and Warehousing Services and $94 of Wholesale Trade (as well as $85 of Utilities that is not shown), while delivery of $1,000 of Stone and Clay products required $143 of Transportation and Warehousing Services and $89 of Utilities (and $59 of Wholesale Trade, not shown) (all in 1979 prices). Although the typical requirements for Business Services are of the same dollar volume, the principal users per dollar of deliveries are the elec- tronics sectors: Computers, Office Equipment, Communications Equipment, Semiconductors, and Other Electronic Devices. It is notable that the services sectors are not among the principal users of the services shown in this table. Communications Services, Finance, Insurance, and Government Postal Services are required in relatively small dollar amounts for the delivery of most outputs—a high of $20-$30 worth per $1,000 of deliveries, contrasted with about $100 worth for the last group of services discussed. Table 9 shows that six of the ten most important users of Communications Services per dollar of deliveries in 1977 were services: Insurance, Radio and TV Broad- casting, Finance, Wholesale Trade, Business Services, and Nonprofit Or- ganizations, in addition to Communications Services itself ($52 worth of Communications Services were absorbed in the process of producing $1,000 worth for delivery to final users). Services sectors were also six of the ten most important users of Insurance, while Finance and Government Postal Services were used most intensively in the delivery of goods. The use of all the services shown in this table by many other sectors (not shown) is almost as great as their use among the top ten; this contrasts with the greater con- centration of intensive use of Transportation and Warehousing, Utilities, and Wholesale Trade. The use of Insurance and of Government Postal Services per unit of de- liveries fell off noticeably from 1963 to 1977 for a number of sectors, while the use of Communications and Finance by most sectors increased. There was no doubt some direct substitution of other forms of communication for the U.S. mail.

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ROLE OF SERVICES IN THE U.S. ECONOMY THE CAPTIVE PRODUCTION OF SERVICES BY BUSINESSES 93 The Business Services sector produced about $135 billion of output for sale in 1977 and employed over four million people. Like many of the services sectors, this sector Las defined on a two-digit Standard Industrial Classifi- cation (SIC) basis] is far larger than the average two-digit manufacturing sector: a single component, Advertising, had as large a volume of sales in 1977 as the entire paper industry. An adequate analysis of the changing role of services will require a far more detailed representation of the services activities in the official (and other) data series. Disaggregation will also contribute to improving the price deflators for services sectors: since the output of a more narrowly defined sector is more homogeneous, one can more readily define a unit of output (and consequently a unit price) that corresponds to actual transactions (e.g., visits to a dentist's office rather than health care services). Although this type of attention to the services sectors is overdue and will be forthcoming, a more fundamental issue needs to be addressed regarding the preparation of data for analyzing the role of the services sectors. The $135 billion of Business Services and four million employees are the tip of the iceberg: a large proportion of U.S. workers are engaged in the production of services for business, notably most managers and clerical workers. If they produce personnel, legal, data processing, or other services for sale by a specialized establishment, this work is counted as services output. If they perform a similar function within, IBM or General Motors, the official (and other) data series do not record this work as the production of services. In the latter case these services represent secondary, and furthermore captive, production. It is useful to examine the treatment of secondary and captive production in official data series in the case of physical outputs because the distinctions are more familiar in this context. Secondary production records outputs- other than the primary product that are produced for sale or, in some cases, for transfer to another establishment within the same firm. Several "estab- lishments" may be defined at the same geographic location, one correspond- ing to each "product" produced; the outcome of some stage of production may be considered a product if it is the primary output of some other sector. One establishment is then said to transfer some of its output to another at the same address, as a device for recording captive production. Thus, for example, construction performed within a manufacturing establishment is "redefined" as output purchased from the construction industry, and steel produced within automobile plants is added to that produced within the steel industry. In these cases, not only the inputs but also the outputs of captive production (i.e., construction activity and steel production) are explicitly accounted for.

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94 FAYE DUCHIN Even in the case of physical production, not all such activity is captured for a variety of reasons. For example, the cogeneration of electricity and the captive production of robots are not recorded (there is not even an SIC code for robots) because they have only relatively recently attained economic importance and because there is no automatic mechanism for deciding when to identify the outputs of various stages of production as secondary products. However, the captive production of services is not recorded at all. A large volume of the intrafirm transfer of services is from corporate headquarters (and other "administrative" units such as R&D facilities) to operating establishments. In industry data series, the inputs of these admin- istrative units are allocated among the establishments they serve. This is represented as an increase in the operating unit's purchases of personnel, structures, paper, and so on not as a transfer of accounting services or data processing services. Other types of services are performed within virtually every establishment. Because the production for an establishment's own use of services has not been recorded in the past, and is not recorded now, it is not possible to conclude to what extent the increased purchases and sales of services (that were quantified in the last section) reflect an increased inter- industry division of labor based on the specialized production of services or to what extent they represent the increased use of services. There are many unresolved issues surrounding the systematic and com- prehensive recording of secondary, especially captive, production. The dis- cussion here is limited to identifying some guidelines for the classification of services that will make possible a more even-handed treatment of the captive production of physical goods and of services. Physical goods produced for an establishment's own use bear a strong resemblance to those produced for sale, as a primary or a secondary product, both in the properties of the finished product and, often, in the process of production. The decision to produce for an establishment's own use is gen- erally the outcome of an explicit comparison of the relative costs and other attributes of "make versus buy." Management is at a much earlier stage in the systematic comparison of making versus buying those services required for production that have typically been produced in-house. The nature of such a service and its production process are likely to be different from those of specialized services establishments. However, the preoccupation with cost reduction and the rationalization associated with automation are powerful pressures for the systematic assessment of these trade-offs and for the stan- dardization of many types of services and their production. At the same time, these same pressures lie behind the growing importance of specialization in the provision of business services. The business processes (nonmanufacturing) generally performed within a firm are listed in Table 10. It is instructive to compare this classification scheme with the 13 subcategories of Business Services (SIC-based) shown

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ROLE OF SERVICES lN THE U.S. ECONOMY TABLE 10 Process Classification Scheme for Corporate Services and Auxiliary Support 1. Finance 1. 1 Accounting 1.2 Financial Analysis 2. Administration 2. 1 Legal 2.2 Personnel 2.3 Public Relations 3. Planning 3.1 Planning, Marketing, Business Analysis 3.2 General Management 3.3 Project Management, Project Office 4. Office Production 4. 1 Publications 4.2 Office Support, Secretarial 4.3 Customer Relations 4.4 Application Evaluation 5. Professional Sales 5.1 Professional Sales 6. Technical 6.1 Laboratory Analysis 6.2 Research and Development 6.3 Telecommunications i. Computer Operations 7.1 Computer Operations 7.2 Data Entry 7.3 Systems Analysis, Design, Programming 95 8. Health/Education 8.1 Counseling 8.2 Education 8.3 Health Care 9. Operations Support 9. 1 Inspection 9.2 Manufactunng Support 9.3 Purchasing 9.4 Quality Control 9.5 Shipping, Receiving 9.6 Warehousing 10. Services 10.1 Entertainment 10.2 Food Services 10.3 Postal Services, Mailroom 10.4 Personal Services 10.5 Security, Safety 1 1. Maintenance 11.1 General Maintenance 1 1 .2 Office Equipment Maintenance 1 2. Other 12.1 Construction 12.2 Transportation of Persons 12.3 Transportation of Product - SOURCE: Duchin (1988a, p. 104). This classification draws on the Work Group Analysis done at IBM. in Table 2 and the entire range of services industries shown in Table 1; their reconciliation remains to be resolved. The range of services carried out within firms will eventually need to be reflected in the services distinguished in the SIC. Once a unified set of services has been defined, the decision to make or buy these services can be analyzed in terms of the technical and business feasibility of separating their execution from other internal activities and the degree of standardization that can be achieved to assure their integration with these other activities, as well as in teas of relative costs. Basing the new services classification not only on accounting but also on analytical consid- erations such as these will improve the usefulness of the official data series both as a record of the past and as input to current decisionmaking. Captive production is a characteristic, not an incidental, attribute of busi- ness services, yet it has gone completely unrecorded until now. Identification

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96 FAYE DUCHIN of the individual activities carried out in production provides the framework necessary for recording how these activities are accomplished through some combination of captive production and purchase of goods and services. These processes play another analytical role that was, in fact, the initial motivation for identifying them: to provide a framework for the systematic projection of alternative future input-output structures based on the conceptually most plausible sources of information. For this discussion the reader is referred to Duchin (1988a). HOUSEHOLD PRODUCTION AND PURCHASES OF SERVICES In basic outline, the discussion of make or buy decisions for businesses also applies to households. However, the representation in official data series of household use and purchases of goods not to mention services is far more rudimentary than that of businesses; and recommendations for redress- ing this imbalance have been described elsewhere (Duchin, 1988b). The first need is for a household classification scheme (eventually a standard household classification, SHC), whose nonexistence has until now caused surprisingly little consternation on the part of analysts. A second requirement is a clas- sification of household activities similar to that shown for business activities in Table 10. A preliminary classification scheme is proposed in Table 11: different categories of households can be expected to execute these processes through characteristic combinations of purchasing versus their own produc- tion of various goods and services. The captive production of business ser- vices has a close analogue in unpaid household labor: what households do for themselves must be examined as a basis for understanding their changing patterns of purchases. The detailed classification and description of households and their activities will malice it possible to analyze the changing use of services by different categories of households, just as their changing use by different categories TABLE 11 Proposed Classification Scheme for Activities of Households 1. Food (obtain, store, prepare, cleanup) 2. Clothing (obtain, maintain, clean) 3. Health Care (visit provider, obtain products) 4. Living Quarters (obtain, maintain, clean) 5. Child Care 6. Personal Grooming 7. Education 8. Recreation 9. Transportation 10. Household Management (recordkeeping, tax preparation, etc.) 11. Activities Related to Paid Employment

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ROLE OF SERVICES IN THE U.S. ECONOMY 97 of industrial sectors is analyzed in previous sections of this chapter. In both cases, an additional level of structure in terms of activities, such as those suggested by Tables 10 and 11, will contribute to the explanation of observed changes. The empirical analysis of changing production and household ac- tivities can then quantify and anticipate the shift (when it occurs) from goods and services produced for oneself (captive production) to those that are purchased. IMPLICATIONS OF THE ANALYSIS A detailed examination of the services sectors reveals their great diversity and their characteristic interdependence with manufacturing and other ma- terials-processing sectors. The growth of the services sectors has been ac- companied by significant demand for construction, energy, paper, transportation equipment, and various special-purpose capital goods that are among the largest inputs (in value) to virtually all the services sectors. The notion that services involve essentially people (and computers), and not manufactured inputs, turns out to be an unrealistic basis for policy. While the common perception is valid that many services provide relatively small deliveries to all sectors, the markets for several of the largest services sectors consist almost exclusively of manufacturing establishments. There is surely competition between services and manufacturing sectors (in fact, among all sectors) for investment dollars and preferential treatment of various sorts; however, the weakening of the U.S. manufacturing base probably harms services sectors more than it helps them because the manufacturing sectors not only provide inputs but also absorb outputs of services. An initial assessment of the interconnections of household and services sector activities identified several large services sectors that divide their output about equally between households and businesses. It is important not to obscure this overlap by the separate treatment of producers' services and consumers' services, and to recognize technological and organizational changes taking place in the home as well as in the office and factory. Talk of the "postindustrial era" and "age of information" notwithstand- ing, our society still sees fit to invest enormous sums, as a matter of national strategy and policy, in research in the natural sciences that is intended to pay off in the form of physical, manufactured products such as new materials and vaccines. Comparably important results affecting our economic and social well-being still await (1) acknowledging the potential importance of the "service" provided by an economic analysis and (2) allocating the order of magnitude of funding that could make it feasible to build and use modern tools (including data bases and models) for a suitably detailed description and analysis of the past, as well as an evaluation of our prospects and alternatives for the future.

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98 FAYE DUCHIN NOTES Throughout this chaper, investment goods are considered as an input to production, rather than being conventionally included with consumption as "final demand.") 2. Net trade is included in the latter, accounting for a very small proportion of the total in all cases. It is not possible to describe the numerous definitions and conventions that underlie the figures in this and the following tables. For example, certain purchases of wholesale trade services are charged directly to households, resulting in what may appear to be a surprisingly small proportion of sales to business. Nor can the various discrepancies among numbers from different sources and those reported in these tables be discussed. This chaper makes extensive use of the Institute for Economic Analysis (IEA) input-output data base. Despite its deficiencies (e.g., all values are in 1979 rather than more recent prices, and the most up-to-date official data have not yet been incorporated), it is still the only data base on which the analysis reported in this paper can be based. In addition to compatible tables for all benchmark years, the data base includes detailed matrices of labor requirements and of capital requirements for the replacement and the expansion of production capacity. 3. The total requirements matrix used here is computed as (I—A—R) - i, where I is the identity matrix, A is the current account input-output matrix, and the matrix R describes replacement of capital. The tables in sections 3 and 4 contain portions of the rows and columns, respectively, of this inverse matrix. . lathe value of refined Petroleum ($127) includes the value of the corresponding crude; the latter is also included in Petroleum requirements ($103). These two or any other total requirements should of course not be summed because of an indeterminate amount of such "double-counting. " 5. In most but not all cases, there is a monotonic or nearly monotonic movement in these total requirements from 1963 to 1967 to 1972 to 1977, the four benchmark years for official input-output tables. REFERENCES Duchin, F. 1988a. Analyzing technological change: An engineering data base for input-output models of the economy. Engineering with Computers 4:99-105. Duchin, F. 1988b. Analyzing structural change in the economy in input-output analysis: Current developments, Ciaschini, ed. London: Chapman and Hall. Fourastie, J. 1966. Idees Majeures. Paris: Editions Gonthier. (translation from p. 32). Leontief, W., and F. Duchin. 1986. The Future Impact of Automation on Workers. New York: Oxford University Press. U.S. Department of Commerce, Bureau of Economic Analysis. 1984. The Detailed Input- Output Structure of the U.S. Economy, 1977, Vol. 1. Washington, D.C.