texas border business
Despite the importance of energy, food, and fiber, Texas’ economy is becoming increasingly service-oriented. Given the sophisticated nature of the state’s industrial base, this result is not surprising. This is a pattern common to all highly developed economies. Let’s examine past trends and expected future trends.
Fundamentally, private sector activity can be thought of as falling into two large buckets: those that produce goods and those that produce services. Sectors that produce goods include manufacturing, construction, agriculture, and mining (including oil and gas extraction). Service is everything else.
Twenty years ago, services accounted for about 63% of Texas employment and nearly 55% of Real Gross Product (RGP). We estimate that by 2021, it will grow to 69% of employment and about 60% of RGP. Our projections are that it will be nearly 73% of employment 20 years from now and about 60% of RGP.
The reason RGP’s share of services is lower than employment is simply that some commodity industries with relatively few workers can produce more output. For example, in an automated manufacturing facility, a few people can monitor equipment that produces many products. Similarly, once a well is completed, a relatively small number of employees can sustain highly valuable oil and gas production. In contrast, many jobs in service companies are person-to-person in nature, but some jobs are not amenable to automation. My late friend, the great economist William Baumol, once said that it would be very difficult for two people to play a string quartet.
The service sector includes various industries. Professional and business services include areas such as accounting and law firms, engineering and consulting firms, and advertising agencies. Healthcare is included, as is the entire wholesale and retail segment. Education, transportation, entertainment and recreation, hospitality, restaurants and financial services are also important factors.
The fastest growth has been seen in transportation and warehousing, where employment has increased by almost 62% over the past 20 years. Several categories of financial services, including insurance companies, have also expanded by more than 60%. Professional and business services, education, waste management and remediation, outpatient health care, and social assistance have also made significant gains.
Looking ahead, we expect social assistance and waste management and remediation to expand at the fastest pace, while the professional and business services category will create the most net new positions.
Over time, jobs will continue to be created at a faster pace in service-producing industries. The composition of occupations will certainly change as economies evolve and technology changes the character and skill requirements of all jobs, but the overall pattern is well established.
Dr. M. Ray Perryman is President and Chief Executive Officer of the Perryman Group (www.perrymangroup.com), which has served the needs of more than 2,500 customers over the past 40 years.