Topic 8 – Location of Services

1. Topic 8– Location of Services A – The Emergence of a Service Economy B – Labor Markets in the Service Economy C – Service Sectors

2. A – The Emergence of a Service Economy Defining Services Factors Driving the Growth of Services Market Areas and World Cities

3. 1. Defining Services • A structural shift • Changing division of labor. • Post-industrial era associated with a significant growth of service employment. • Referred as the tertiary sector. • A wide diversity of occupations and industries: • Difficult to define services. • Linked with more advanced economies. • 80% of employment in the United States. • 90% of job creation.

4. 1. Types of Services

5. 1. Types of Services

6. Main Sectors of Service Employment

7. 1. Types of Services • Production and consumption of intangible inputs and outputs • Some services have tangible input and outputs (e.g. restoration). • Almost all services require infrastructure. • Service industries • Relate to a service economic sector (e.g. FIRE). • Employment figures are measured by industries. • Service occupations • A service occupation in any economic sector. • Service functions • How services are delivered to its consumers. • Face to face; telecommunications.

8. 2. Factors Driving the Growth of Services

9. Income Elasticity and Demand per Economic Sector Quantity Services Manufacturing Primary Income per Capita

10. 2. Factors Driving the Growth of Services

11. 2. Externalization Processes in the Producer Services • Transaction Costs • Using an external service provider may be cheaper. • No need for full time employees (+ benefits). • Providers may be able to provide economies of scale. • Flexibility • Use when required. • Cope with instability and seasonality. • Risk Reduction • Transferred to the subcontractor. • Concentration on core skills • Acquisition of expertise that cannot be provided internally.

12. 3. The Spatial Setting of Market Areas Radial Market Areas Optimal Coverage with Radial Market Areas Transformation from Radial intoHexagonal Market Area Optimal Coverage with Hexagonal Market Area

13. 3. Central Places Theory B B B B B A A B B B Order B B A B C Market area

14. 3. World Cities, 2012

15. 3. Criteria to be a World City

16. B – Labor Markets in the Service Economy Productivity of the Service Sector Main Characteristics

17. Productivity of the Service Sector • Are services productive? • Assumption of low productivity in services compared to manufacturing. • Difficulties in measuring services productivity: • Output per unit of input. • What is the output? • Routine services vs. complex services. • Productivity constraints • Personal (human) labor is necessary • The co-presence need for seller and buyers for many services (haircuts). • Proximity requirements may grant monopolistic power to sellers, restraining productivity. • Opacity in markets (buyer not knowledgeable about service).

18. Productivity of the Service Sector • IT and Productivity • Falling costs of IT equipment & software. • Growing real power of machines and networks. • Changing capabilities, that in many cases have allowed innovations in services. • Integration of service providers in networks. • The Internet as a medium for services transactions.

19. Main Characteristics • Labor intensity • More labor per unit of output. • 70 to 90% of total costs are labor costs. • 5 to 40% in manufacturing. • Incentives to mechanize in some sectors (e.g. banking). • Difficult to mechanize for some sectors (e.g. personal services).

20. Main Characteristics • Income distribution • Manufacturing generally associated with a middle class. • Deindustrialization tends to result in higher levels of income inequality (“McDonaldization”). • Growth of contingent labor (part time).

21. Main Characteristics • Gender composition • Manufacturing usually employed males. • Services permitted a high participation level of females in the work force. • However, notable gender differences by profession (“pink-collar jobs”). • The two income paradigm.

22. The Rising Role Females In the Labor Force

23. Gender Composition of Employment - % Female Pink Collar Jobs – Defined by Occupation Not by industry

24. Main Characteristics • Low unionization • Decline from 45% in 1950 to 12% in 2010. • Mostly related to the emergence of services. • Educational input • Important for many service jobs. • Income generally proportional to level of education. • 70% of high school graduates attend university. • Education perceived to be fundamental to a knowledge-based economy.

25. Education Levels & Income Tendency For College Educated Labor To work In the Service Economy

26. C – Service Sectors Financial Services Producer Services Consumer Services

27. 1. Financial Services • Formation of capitalism • Requires the critical support of finance. • Credit systems and banking. • Intermediaries between borrowers and savers. • Commercial banking • Involved in commercial loans. • Provide capital for projects (e.g. real estate). • Retail banking (savings and credit cards). • Investment banking • Buying and selling securities (e.g. stocks and bonds). • Expertise for international transactions and foreign exchange.

28. 1. Financial Services • Savings and loans • Mainly for mortgages. • Insurance • Commodification of risk. • Different types of insurance products (property, life).

29. Financial Services Concentration of Banking Employment Financial Regulation And Deregulation

30. Offshore Banking

31. Technological Change & Electronic Funds Transfer

32. 2. Producer Services • Accounting • The separation of ownership and control underlined the need for financial auditing. • Often undertaken by an external firm. • Design and innovation • Management consulting (improving productivity). • Design products for marketability and efficiency. • Legal services • Complexity of laws, negotiations, contracts, patents and regulations. • Multiple jurisdictions.

33. KPMG: A Globalized Service Firm 145,000 employees

34. Hierarchy & Concentration in Law Firms

35. 3. Consumer Services • The role of the consumer • Retail, personal services, restoration, tourism, sport, entertainment. • Traditionally focused on the travel cost for their consumption (market areas). • Tourism • Very large service industry of global reach. • Business, personal and mixed trip purposes. • Close to 1 billion arrivals (14% of the global population). • Medical tourism.

36. International Tourists Arrivals and Receipts, 1950-2011

37. Monthly International Tourist Arrivals, 2011

38. Share of International Tourist Arrivals by Region, 1950-2010

39. Visa Restrictions Index, 2011

40. Cruise Passengers Visits, Caribbean, 2011