By FERNANDO NOGUEIRA DA COSTA*
Although productivity in many services may be comparatively lower than in industry, this is not a fixed rule.
From 1995 to 2023, the contributions of the activity sectors to the added value (about 14% is added to result in the GDP) in the Brazilian economy did not change much, oscillating around the following averages: agriculture 5,7%; total industry 25,3% and services 69%. The extractive industry fluctuated around the average of 2,7%; the contribution of the manufacturing industry was 14,5% with a downward trend and, after 2022, recovery; electricity and gas, water, sewage, etc. 2,8%; construction industry 5,4%.
The share of household consumption in GDP, in the period 1995-2023, was on average 62,7%. The average share of services in GDP (different from the value added) was 59,2%, quite close to meeting household demand for consumption of services, mainly urban services.
According to demographer José Eustáquio Diniz Alves, “the urban population increased from 18,8 million in 1950 to 177,5 million in 2022, an increase of 9,5 times over the period. In the opposite direction, the rural population was 33,2 million inhabitants in 1950, falling to 25,6 million in 2022, a reduction of 20% over the period. In percentage terms, the rural population decreased from 63,8% in 1950 to 12,6% in 2022 and the urban population grew from 36,2% in 1950 to 87,4% in 2022”.
The Brazilian economy is understood to produce predominantly urban services. It is not so different from the North American economy, according to Martim Wolf, editor and chief economic commentator of Financial Times. “In 1810, 81 percent of the U.S. labor force was in agriculture, 3 percent in manufacturing, and 16 percent in services. By 1950, agriculture’s share had fallen to 12 percent, manufacturing’s peaked at 24 percent, and services’ share had reached 64 percent. In 2020, these three sectors’ employment shares were less than 2 percent, 8 percent, and 91 percent, respectively. The evolution of these shares describes the employment pattern of modern economic growth.” (apud Price, 13/11/24).
According to the PNADC-IBGE, people aged 14 or over employed in the 3rd quarter of 2024 totaled 103 million. With another 7 million unemployed, the workforce in Brazil reaches 110 million, the fifth largest in the world. It is behind only China (782 million), India (554 million), the USA (168 million) and Indonesia (138 million). Brazil surpasses, in order, Pakistan (79 million), Bangladesh, Russia (74 million), Nigeria (73 million) and Japan (69 million).
In Brazil, there were 14 million people aged 8 or over working in the agriculture, livestock, forestry, fishing and aquaculture activity groups, 13,3 million in general industry and 7,5 million in construction. Deducting these 28,8 million people employed, there were 74,2 million (72%) in services.
Considering 39 million employees in the private sector with a formal employment contract (38%), 12,8 million (12%) employees in the public sector (including civil servants and military personnel) and 4,3 million (4%) employers, there were 56,1 million (54%) people with formal jobs. Deductively, there were almost 47 million informal workers, equivalent to 46% of the total employed.
Services are a sector of economic activity characterized by the production of intangible goods or activities that provide assistance, support or facilitation, rather than the creation of material goods. They include activities such as education, health, trade, transportation, tourism, information technology, financial services, etc.
Among their main characteristics, they are intangible, because they cannot be stored or touched, unlike material goods. They are inseparable because production and consumption occur simultaneously, for example, in a medical consultation. They are heterogeneous, because their quality varies depending on the provider or the circumstances. Finally, they are perishable because they cannot be stored for later use.
Therefore, productivity in the service sector, by definition, is not necessarily low. However, its measurement and increase face their own problems and give this impression “from one (producer) to one (consumer)”.
Productivity is generally measured as the output per unit of input as hours worked. In the case of services, the output It is often difficult to quantify, especially in services not directly linked to tangible production such as health or education. How can we measure a teacher's productivity? Just by the number of students served or by the quality of learning?
Services that rely on empathy in direct human interactions (such as healthcare, education, and social services) offer less opportunity for automation compared to industry. This limits rapid productivity gains.
Economists are familiar with Baumol’s Law or “Cost Disease,” formulated by William Baumol. Service industries struggle to increase productivity because certain human tasks are essential and cannot be sped up, such as a live presentation or a clinical examination.
There is great variation within the service sector. While some services, such as technology-based services (IT and telecommunications), are experiencing high rates of productivity growth, others (such as personal or household services) remain relatively stagnant.
Although productivity in many services may be comparatively lower than in industry, this is not a fixed rule. Some services (such as financial or technological) have high productivity, especially with intensive use of technology.
Informality compounds the problems of measuring and improving productivity in services for several reasons. Without formal production records, it is difficult to calculate real productivity (output per hour worked). This leads to underestimation of productivity and makes accurate analysis difficult. For example, an informal service provider (such as a mechanic or street vendor) does not have clear records of how many services he performs or the time required.
Informal workers have limited access to technology or professional training. They would increase efficiency rather than have low levels of productivity.
Informality is associated with less qualified jobs, with less investment in education or training. It directly impacts productivity.
Informal workers generally have less access to credit, equipment or infrastructure. They would increase their production and efficiency.
Precarious working conditions mean a lack of social protection, labor rights and job stability. It reduces incentives to increase efficiency or invest in training.
In developing countries with large populations, the informal service sector is large and concentrates low-productivity activities such as street trading or personal services. It reduces the average productivity of the service sector as a whole. The formal sector itself suffers from excessive informality by limiting the potential for dynamism, innovation and professionalization of work.
By definition, services do not necessarily have low productivity, but they face particular problems in increasing and measuring it. This is especially true in subsectors where human interaction is essential.
Informality exacerbates these problems by hindering accurate measurement, limiting access to resources, and perpetuating low-efficiency practices. Investing in the formalization and modernization of the services sector is essential to improving its contribution to the economy as a whole.
For example, one OECD country with the shortest working weeks in the world is Denmark. It is also ranked as one of the happiest countries in the world. A recent government report stated that Denmark is seeking to address shortages of workers in areas such as education, healthcare, IT, computer science and engineering, as well as other skilled occupations including business professionals, accountants, machinists, construction workers and food service professionals.
Although Germany has much less of a labor shortage compared to its European neighbors, certain professionals, including software developers, from software, electrical engineers and installers, mechanical engineers, medical professionals, IT professionals and economists have a good chance of finding work. Paradoxically, despite Europe’s aging population, xenophobic nativism is emerging against immigrant service providers, including those who are needed to care for the elderly…
*Fernando Nogueira da Costa He is a full professor at the Institute of Economics at Unicamp. Author, among other books, of Brazil of banks (EDUSP). [https://amzn.to/4dvKtBb]
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