Creating New Jobs in the Service Sector

Abstract

The U.S. experience in the decade since 1973 shows that slow economic growth is compatible with the large-scale creation of new jobs. The contrast with Europe is accounted for by the service sector. In Germany, where overall economic growth was no slower than in the United States, the growth rate of service sector jobs was about one-quarter of that in the United States. The dramatic and continuous employment gains in the United States are often explained by the higher flexibility of its labor market, by higher labor mobility, and by fewer social regulations and protections than in Europe. There are many institutional and socioeconomic influences and demographic pressures that have pushed low-skilled labor, such as women and young people, into poorly paid service jobs. Most of the European countries, and especially Germany, have provided service outputs by less labor-intensive production processes promoted by the rapid growth of real wages and nonlabor costs in the 1970s. But there are many unsolved questions concerning the main underlying causes of the divergent employment patterns in the United States and Germany that justify a comprehensive research agenda.