Classifying services

The heterogeneous nature of the service sector means that, in order to trace through and analyse changes within the sector, it is necessary to disaggregate it in some way. As Miles (1996, p. 146) argued:

… the service sector is not one sector at all; it is comprised of extremely heterogeneous activities, which play very diverse roles in overall economic performance.

Understanding the service sector is, in large part, a problem of gaining a better conceptual and empirical understanding of this complexity and its implications.

However, devising a useful classification system for a sector encompassing such a diverse range of activities presents a number of challenges. As Bryson & Daniels (1998, p. xv) said:

… the very heterogeneity of service activities has been a nightmare for analysts interested in classifying them.

The traditional approach

The traditional classification is industry based. Broadly speaking, this involves grouping together economic entities that produce similar products. The United Nations International Standard Industrial Classification of All Economic Activities (ISIC) forms the basis upon which most countries collect and publish data on their economies.¹ The Australian and New Zealand Standard Industrial Classification (ANZSIC) contains agriculture, mining, manufacturing and fourteen other industry groups which are usually grouped together to form the ‘service’ sector. The fourteen service industry groups are summarised in table 2.2.

The traditional classification system, however, has been criticised by a number of analysts for its inadequacies when it comes to analysing trends in services and the role they play in the economy. For example, Marshall and Wood (1995, p. 28), said:

For services, whose products are by definition intangible, and can often be valued only when combined with other functions, ISIC based data are always likely to be unsatisfactory. As service functions have increased, product-based sectoral classifications are less able to give an adequate reflection of how economies function.

1 The definition of services that was established by the United Nations in Revision 3 of the International Standard Industrial Classification (ISIC Rev.3) includes eleven major divisions (G to Q) — wholesale and retail trade; health and restaurants; transport, storage and communication; financial intermediation; real estate, renting and business activities; public administration and defence; compulsory social security; education; health and social work; other community, social and personal service activities; private households with employed persons;

extra-territorial organisations and bodies (United Nations 1990).

Over the years a number of alternative classification systems have been proposed, mainly to better reflect the heterogeneity of service sector activities. Some of the better known alternative classification systems are briefly discussed below.

Additional information on these systems is provided in appendix A.

Table 2.2 The traditional industry-based classification of services

Service industry group Major activities Electricity, Gas &

Water

Electricity and gas supply. Water supply, sewerage and drainage services.

Construction Building and non-building construction. Also construction trade services — site preparation, building structure, installation, building completion and other construction services.

Wholesale Trade Basic material wholesaling, machinery and motor vehicle wholesaling, personal and household good wholesaling.

Retail Trade Food retailing, personal and household good retailing, motor vehicle retailing and services.

Accommodation, Cafes & Restaurants

Hospitality services including accommodation, pubs, taverns, bars, cafes, restaurants and clubs.

Transport & Storage Road, rail, water, air, space and other transport. Services to transport and storage.

Communications Services

Postal, courier and telecommunication services.

Finance & Insurance Finance, insurance and services to finance and insurance.

Property & Business Services

Property operators and developers, real estate agents, non-financial asset investors, machinery and equipment hiring and equipment.

Scientific research, technical research, computer services, legal and accounting services, marketing and business management services, and other business services.

Government Administration &

Defence

Central, state and local government administration, judicial authorities and commissions, representations of overseas governments, the Army, Navy and Air Defence forces and civilian units engaged in defence administration.

Education Preschool, primary and secondary education; post-school education and other education.

Health & Community Services

Hospitals, nursing homes, medical and dental services, other health services, veterinary services, childcare services and community care services.

Cultural &

Recreational Services

Motion pictures, radio and television services, libraries, museums and the arts, sport, recreation and gambling services.

Personal & Other Services

Personal and household goods hiring, other personal services, religious organisations, interest groups, public order and safety services, and private households employing staff.

Source: ABS (1993).

DEFINING AND CLASSIFYING SERVICES

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Alternative classification systems

One of the more common approaches to reclassifying services involves grouping them according to the markets they serve — that is, whether they meet final (consumer or household) or intermediate (producer) demand. Under such a classification, consumer services cover all services sold directly to consumers for their personal use — entertainment and recreational services and personal services such as hair and beauty treatments. Producer services cover all services provided to producers of goods and services and include, for example, office cleaning, computing, consulting and other business services.

This classification has intuitive appeal because it has the potential to better reflect changes going on within the service sector. But, some of the proposed categories are neither mutually exclusive (for example, some services, such as banking, insurance and transport fall into both final and intermediate demand), nor do they necessarily relate to the form in which economic data on services is collected.

One way around the problem of some services not being mutually exclusive is to create a third group of ‘mixed’ services. Another is to assign activities to consumer or producer services according to which type of output or employment predominates. But, such a solution overlooks the fact that the share of intermediate and final output of service industries can change over time and can vary between countries. And, as Allen (1988, p. 18) argues, some services, such as the

‘commercial and financial services which mediate and abbreviate the exchange process are neither producer nor consumer services’, but are ‘circulation services’

which should be classified separately.

Browning and Singelmann (1978), proposed a taxonomy which reflected a combination of the economic function performed by the service, the markets served and the dominance of private or public provision. They suggested splitting the sector into four sub-sectors — producer, distributive, personal and social services.

Elfring (1988), building on this system, regrouped the service activities from the ISIC under the four sub-sectors (table 2.3). The OECD (2000a) now uses this system to analyse components of service sector employment. It is also the basis for the sub-groups used to analyse changes in service output and employment in this report (chapters 3 and 4).

Other systems for classifying services — such as those developed by Miles (1993) and Evangelista and Savona (1999) — can provide useful insights into the use of technology and process and product innovation within the service sector (see appendix A for additional information on these systems).

Table 2.3 Market-based classification systems — Browning-Singelmann’s

• Banking, credit and other financial services

• Business and professional services

• Financial services

• Retail trade (except eating and drinking places)

• Hotels and lodging places

• Eating and drinking places

• Repair services

• Laundry and dry cleaning

• Barber and beauty shops

• Entertainment and recreational services

• Miscellaneous personal services

• Hotels, bars and restaurants

• Recreation, amusements and cultural services

• Domestic services

• Other personal services

Social services _• Medical and health services

• Hospitals

• Education

• Welfare and religious services

• Non-profit organisations

• Postal services

• Government

• Miscellaneous professional and social services

• Government proper (civil or military)

• Health services

• Education services

• Miscellaneous social services

Sources: Browning and Singelmann (1978) and Elfring (1988).

Summing up

The service sector is a highly diversified sector. While the traditional industry-based classification system provides a starting point for analysing the sector, alternative classification systems can be useful tools for providing insights into key trends and developments within this sector. The choice of classification system will usually depend on the questions or issues being addressed and the form in which service sector data is collected.

THE ROLE OF SERVICES IN THE ECONOMY

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