Splitting the Economy between Goods and Services

By Mark Knold, Senior Economist

An economy can be segmented into various industrial divisions. One of the simplest is into private sector goods-producing and private sector service-providing segments. By saying “private sector” we are implying a third segmentation, that being government employment (i.e., public sector). But the private sector is the tangible driver of an economy; therefore, it is informative to isolate upon the private sector.

As the name implies, the goods-producing segment features the production of a physical good. These usually come out of the mining, construction, or manufacturing industries; thus, these industries are the goods-producing segment. In contrast, the service-providing segment does not produce physical goods but instead provides services to consumers or businesses within the economy. Some of these might be the sale, repair, maintenance, or distribution of the goods-production products, but that is different than the production of the physical product itself.

Why do we separate the economy into these two segments? The simple answer is the production of a physical good versus a non-physical good. But the answer also goes deeper. There is a general partition between the two segments by the skills and education requirements needed, as well as a general wage differentiation.

As a whole, the goods-producing sector does not require as high an educational attainment as does the service sector. Specialized knowledge and skills are necessary across the board to be a successful goods-producing worker, but the demand for a more advanced college education is generally not the norm. Most of the skill requirements within the goods-producing sector can be learned on the job.

The service sector, on the other hand, is more widespread in its education requirements. It runs the gamut from low skilled to advanced-education skills. The attainment of college-level education generally finds its extensive use and employment within the service-providing sector. The goods-producing segment does employ these higher-education skills, but only as a small percentage of its whole. Services, on the other hand, employ these high-education occupations to a much higher proportion.

Yet, as a whole, the goods-producing sector pays a higher wage than does the entire spread of the service-providing segment. In Utah, the goods-producing average monthly wage is $4,618 while the service-providing’s is $3,805. The spread of the goods-producing wage offerings generally have a higher floor and a lower ceiling than does the service-providing. The lowest average wages across all subindustries are found in the service-providing segment; yet, the highest average subindustry wages are also found in the service-providing segment. The width of this spread produces a lower average wage within service-providing than does the goods-producing’s more narrow spread.

The service-providing segment is the larger of the two. In Utah, the service-providing segment is 67 percent of the employment base. Goods-producing is only 16 percent. Government makes up the remaining 17 percent and nearly all of that is service-based employment. These percentage distributions are not unique to Utah, as such a gap is common across most states (the government segment employment is generally a bit higher in Utah).

Across the state’s various county economies, these gaps show much more diversity — from a large spread in Daggett County to a narrower spread in Box Elder County. Yet, within most counties, the service-providing segment accounts for the higher percentage of employment. The two exceptions are in Daggett and Piute counties where government is the largest employment sector.

Some of Utah’s rural counties have a high percentage of goods-producing employment, as their natural resource endowments produce specialized goods-production industries, like oil and gas mining in Duchesne and Uintah counties, or coal mining and electrical generation in Carbon and Emery counties. These counties have an overall higher-than-normal average monthly payroll wage because of this goods-producing presence. However, these counties’ economic fortunes can also ebb and flow with the fortunes or misfortunes of their natural endowment industries.

Other segments of rural Utah are heavily dependent upon travel and tourism, which is one of the lower-paying industries. Therefore, a viable counter weight of a goods-producing presence would help to enhance the overall economy. But in counties such as Millard, Grand, Kane, Rich, Garfield and Daggett, such a presence is not manifested.

As time has progressed and the pervasiveness of the former Industrial Revolution has faded, the Utah economy has moved toward a larger share of service-production employment and away from goods-production employment. Those proportions have largely stabilized over the past 15 years and further shifts toward the service side will likely be more subtle drifting than structural movements. Yet, because of this shift over time, the need for advanced education has become more of a necessity for workers to attain the high-end wages that can be attained within the service-providing segment. There is also a concern that not enough high-end service-production jobs will develop in rural parts of Utah to backfill any further job losses that may develop within the goods-production segment.