Geo Class 11 notes

Introduction to Services

• Definition of Service:

  • Production and consumption of intangible inputs and outputs, contrasting with manufacturing.

Types of Services

• Producer Services: Include financial, professional, and business services such as:

  • Law, marketing, advertising, consulting, engineering, architecture, accounting.

• Transportation and Communications:

  • Examples: Airlines, bus companies, telecommunication companies.

• Wholesale and Retail Trade:

  • Examples: Walmart, Wegmans.

• Consumer Services:

  • Include eating, drinking, repair, maintenance, entertainment, and tourism services.

• Government Services:

  • Entities like DMV and tax authorities.

• Non-Profit Services:

  • General charity services.

Economic Contribution of Services

• GDP Contribution:

  • Developed economies have a higher proportion of total GDP from services.

  • Countries like North America, Western Europe, Australia, and Japan show high service contribution, indicating high income levels.

Growth of the Service Sector

• Rising Incomes:

  • As individuals' income increases, demand for services grows significantly compared to primary and secondary sectors.

  • Example: Increased spending on education and travel with rising income.

• Demand Trends:

  • Between 1988-2008, demand for services outpaced nondurable and durable goods.

  • Post-2005, service demand growth has slowed as income levels plateau.

• Sector-Specific Growth:

  • Health care and education services have seen notable demand increases.

Increasing Complexity in Labor Division

• Changing Workforce Structure:

  • Rise of non-direct production roles in manufacturing, leading to more specialized service jobs (e.g., marketing, legal issues).

• Example with Sony:

  • Transition from primarily manufacturing to a focus on entertainment and finance.

Outsourcing of Services

• Reasons for Outsourcing:

  • Cost-efficiency and risk reduction by hiring external firms for non-core tasks (e.g., cleaning, security).

• Impact on Labor:

  • Increase in flexible, contingent labor market; part-time jobs often taken by women and minorities.

Income Distribution and Inequality in Services

• Income Disparity in Services:

  • High-value positions (e.g., lawyers, bankers) earn significantly more than low-skill positions (e.g., janitors).

  • Trends contributing to income inequality, especially due to technological advances like AI.

The Gini Coefficient and Income Inequality

• Understanding Gini Coefficient:

  • Measures income inequality within a country; closer to 1 indicates higher inequality.

  • U.S. income distribution is compared unfavorably to some developing nations.

Labor Market Characteristics in Services

• Unionization Rate:

  • Lower among service workers compared to manufacturing; significant drop from 45% post-WWII to 12% currently.

Financial Services Overview

• Types of Financial Services:

  • Commercial banking, investment banking, savings and loans, insurance.

• Historical Perspective:

  • Deregulation trends since the 1980s have led to bank mergers and financial crises, notably the Great Recession (2007-2009).

Location of Producer Services

• Urban Concentration:

  • Producer services often located in large urban areas due to agglomeration economies, benefiting from geographic concentration.

  • Major cities include Los Angeles, Chicago, New York, among others.

International Trade in Services

• Trade Dynamics:

  • Services are increasingly traded internationally, though measuring online services is complex.

  • U.S. shows a trade surplus in services, representing a comparative advantage.

Conclusion

• Services play a crucial role in the modern economy with expanding sectors, heightened labor specialization, and ongoing trends in income inequality and outsourcing.