Despite the importance of energy, food and fiber, the Texas economy is increasingly service-oriented. This result is not surprising given the state’s industrial base; it is a pattern common to every advanced economy. Let’s examine past and anticipated future trends.
Basically, you can think of the activities of the private sector as falling into two broad areas – manufacturing and service-producing industries. Goods producing sectors include manufacturing, construction, agriculture and mining (including oil and gas exploration). Service is everything else.
Twenty years ago, services accounted for approximately 63% of employment and almost 55% of real gross product (RGP) in Texas. In 2021 we estimate it will have grown to 69% of employment and about 60% of RGP. According to our projections, in twenty years it will be almost 73% of employment and still around 60% of RGP.
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The reason that the service share in RGP is lower than in employment is simply that it is possible in some commodity-producing industries to create large outputs with relatively few workers. For example, in an automated manufacturing facility, a few people can monitor equipment that makes many products. Similarly, a relatively small number of employees can sustain extremely valuable oil and gas production once a well is completed. In contrast, many jobs in service companies are human-to-human, while others do not lend themselves to automation. My late friend and great economist William Baumol once remarked that it would be exceedingly difficult for two people to play a string quartet.
The service sector encompasses a variety of industries. Professional and business services include areas such as accounting and law firms, engineering and consulting firms, and advertising agencies, among others. The healthcare sector is just as much a part of this as the entire wholesale and retail trade. Education, transportation, amusement and recreation, hospitality, restaurants and financial services are also important components.
The fastest growth has been in transportation and warehousing, where employment has increased by nearly 62% over the past 20 years. Several financial services categories have also grown by 60% or more, including insurance carriers. Professional and business services, education, waste management and sanitation, ambulatory health care and social assistance have also grown strongly.
Looking ahead, we expect the fastest pace of expansion to be in the social welfare and waste management and remediation sectors, although the professional and business services category will generate the largest number of new net positions.
Over time, jobs in service-producing industries continue to be created at a faster pace. The composition of occupations will certainly change as the economy evolves and technology changes the character and skill requirements of each job, but the overall pattern is well established.
Economist Ray Perryman is President and CEO of The Perryman Group, an economic research group and analytics firm based in Waco. He is a member of the Tribune-Herald Board of Contributors.
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