SERVICE INDUSTRY

an industry in that part of the economy that creates services rather than tangible objects. Economists divide all economic activity into two broad categories, goods and services. Goods-producing industries are agriculture, mining, manufacturing, and construction; each of them creates some kind of tangible object. Service industries include everything else: banking, communications, wholesale and retail trade, all professional services such as engineering and medicine, nonprofit economic activity, all consumer services, and all government services, including defense and administration of justice. The proportion of the world economy devoted to services has been rising for hundreds of years, most notably since the beginning of the 20th century. A services-dominated economy is characteristic of developed nations, while less developed nations tend to employ more people in primary activities such as agriculture. In the United States, for example, the service sector in 1929 accounted for only 54 percent of the gross national product, whereas in 1978 service industries accounted for about 66 percent of the gross national product. This rapid growth did not occur because goods production declined but rather because the total gross national product increased nearly fivefold, with most of the increase attributable to services. The simplest explanation for the growth of service industries is that goods production has become increasingly mechanized. Because machines allow a smaller work force to produce more tangible goods, the service functions of distribution, management, finance, and sales become relatively more important. Growth in the service sector also results from a large increase in government employment.