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Testing the Gershuny hypothesis
508
TESTING THE GERSHUNY HYPOTHESIS Ciaran
Driver
This article tests the Gershuny hypothesis using UK inputoutput data. Gershuny has suggested that in many countries the share of consumer expenditure devoted to private or marketed services has not risen over time. Rather, consumers have tended to substitute durable goods and their own labour for purchased services. The UK data do provide support for this argument. Keywords: economics
+ UK; services; input-output
IT IS WIDELY BELIEVED that services are similar to luxury goods in that a higher proportion of expenditure is allocated to services over time as societies increase their income levels. This view has been challenged for the case of private services by Gershuny’ and Gershuny and Miles. ’ They argue that in many countries the share of consumer expenditure devoted to private or marketed services has not risen over time. Rather, consumers have tended to substitute durable goods and their own labour for purchased services. Examples of this are the replacement of live entertainment and personal service by domestic electrical equipment. The ‘Gershuny hypothesis’ may thus crudely be summarized as the view that manufactured commodities tend to be substituted for final services over time as the latter become relatively more expensive. When combined with a high (crosssection) income elasticity for services, the result is a stable, or even declining This is to be contrasted, Gershuny share of private services in consumption. demand (producer argues, with a higher share of services in intermediate services). The rise in service employment is to be seen as a result of this rise in producer services, coupled with a general low productivity growth in services. Gershuny and Miles3 provide figures based on EEC data (and indirectly for the UK, on Blue Book figures*) which show that the percentage of consumer expenditure on a number of categories of private services has remained stable or declined between 1970 and 1979. There are some advantages in looking not at these data but at the UK inputDr C. Driver is with the National Economic Development Office (NEDO), Millbank Tower, Millbank, London SW1 4QX, UK. The author is grateful to Derek Morris for helpful comments, to Andrew Kilpatrick for helpful comments and for providing data, and to Sandy Campbell for computational assistance. The views expressed are those of the author and not those of NEDO.
0016-3287/84/050508-05$03.000
1984
Butterworth&Co(Publishers)
Ltd
FUTURES October
1984
Testing the Gmhuny hypofhssis
509
output data.5 This allows for a broader look at how services constitute an input to many intermediate and final demand categories-not just consumer expenditure. It also allows the services functions to be better defined, so that ‘distribution’ for instance includes gross margins, which in the expenditure analysis is allocated to the goods or services themselves. One disadvantage is that entries in input-output tables are all in current prices, so that no indication is provided on changes in the volume share change in services over time. This question is addressed below. Another disadvantage, of course, is that the figures are only available for benchmark years, A further problem is that the 1979 tables have been calculated on the new (1980) Standard Industrial Classification and can, therefore, only be compared with a transformed version of the 1974 tables. These reworked tables have been supplied by the UK Central Statistical Office with a warning that some errors may have been made in the reallocation, Nevertheless the changes between the two tables should be reasonably indicative of actual changes, especially for broad categories. Intra-industry flows have been excluded from both tables, as is normal for comparisons over time. This lessens the possibility of spuriously identifying changes due to ownership changes within an industry. For each of the two years, the entries for manufacturing, construction and all services (except utilities and Public A~inistration) were compared using the commodity by commodity tables. The flows were expressed as coefficients by dividing through by the column totals. The array of differences between the tables (1979 minus 1974) was then compressed column-wise (using appropriate weights) and row-wise to yield Table 1. Comment Generally, the changes for the UK are quite small. The first column seems to give some credence to the view that private services are substituting to some extent for manufacturing in providing inputs to manufacturing. (Note that although intra-indust~ flows are excluded flows between manufacturing industries are not). This view is strengthened by the disaggregated figures (not shown) which indicate that the 0.012 increase in the coefficient for manufacturing’s use of private services is dominated by the ‘other services’ industry component, which might be thought of as producing competing service output to that often produced within manufacturing. In other words, there is some evidence here of ‘contracting out’, but the extent is very small. The second column gives figures on construction and, in this case, the increase in private services input is largely accounted for by distributors’ margins for reasons that are unclear. The remainder of the table shows little change in the intermediate coefficients, private services input to public services has increased, whereas public services input to private services has decreased. It is difficult to know what to make of this. Road transport has been included in public services, although most of the road haulage business is private. Increases in energy costs may be responsible for the reduction of transport input to many services. Turning to the final demand categories, manufacturing input to consumer expenditure has dropped sharply and is only partially compensated by a rise in
FUTURES October 1994
- 0.003 - 0.003 0.012 0.004
Manuf’g
Prlvate services 0.010 0.005 - 0.008 - 0.013
Const’n - 0.022 0.000 0.024 0.061
0.003 0.000 0.021 0.006
Pub& services - 0.039 0.005 0.022 - 0.006
Consumer expenditure 0.017 - 0.046 0.029 0.003
0.022 - 0.013 0.005 0.006
Public services Private services Total services
0.018 0.143 0.161
1974
0.072 0.123 0.195
1979
TABLE 2. SERVICES PROPORTION OF CONSUMER fMPORTS
._
- 0.012 - 0.002 - 0.033 0.016
Exports
etc (Industries 1-Q) and
Gross flxed capital formation
General government expenditure
The changes within any column do not add to zero due to changes in other entries not shown, viz Agriculture primary inputs. Distribution etc, Hotels etc, Sea Transport, Transport Services, Banking etc, Owning etc, and other services. Railways, Road Transport, Postal Services and Telecommunications.
Manufacturing Construction Private servicesb Public services’
_
TABLE 1.1979 TECHNOLOGICAL COEFFlClENTS MINUS 1974 TECHNOLOGICAL COEFFICIENTSa
3w p E,
5 11
Testing the Gershuny hypothesis
private service input. The size of the coefficient change is fairly small and does not support the rejection of the Gershuny hypothesis. Although the figure of 0.022 is nearly twice the corresponding figure in the manufacturing column, the reverse of the relationship that might be expected in the Gershuny hypothesis, more disaggregated data show that the positive sign of the change in this coefficient between 1974 and 1979 was entirely due to the category ‘Distribution etc and repairs’. The distribution component of this is by far the largest and is measured by gross margins of distributors which may be inclined to vary from one period to another. In terms of the distribution between consumer-oriented be and producer-related services, these categories might more reasonably associated with the producer-related category. On this basis the figures would be entirely consistent with Gershuny .’ The figures in Table 1 exclude imports, but it is possible to compare the commodity composition of imports between 1974 and 1979 using the inputoutput tables. The figures in Table 2 were obtained for consumer imports. The sharp rise in consumer imports of ‘public’ services is accounted for by air travel. Otherwise the figures are fairly stable over time. Changes in the other coefficients, while not strictly relevant to the Gershuny hypothesis may nevertheless be of some interest. Increased coefficients of manufacturing inputs to Gross Fixed Capital Formation (GFCF) along with the drop in construction input may indicate a switch towards capital deepening of the plant and machinery sort, rather than expansionary investment normally associated with new buildings and works. The rise of leasing may be a factor explaining why the private services increase in input to GFCF is all accounted for by ‘banking etc.’ On the exports front, the only aggregate bright spot (perhaps surprising) is public services (dominated by Air Transport). Within private services, banking etc and other services also increased their inputs to exports, but overall the change was negative. The deteriorating export performance of all sectors apart from public services is, presumably, partly attributable to the influence of North Sea oil on the exchange rate. TABLE 3. PROPORTIONS OF GOODS AND SERVICES IN CONSUMER EXPENDITURE
A. At current
Goodsa Services, adjusted for expenditure abroad and final expenditure by non-profit bodiesb B. At constant
1974
1979
198g
1991
1982
0.651
0.645
0.623
0.611
0.603
0.202
0.207
0.221
0.222
0.225
0.637 0.216
0.639 0.213
0.623 0.221
0.621 0.220
0.620 0.221
prices
(7980) prices
GoodsC Servicesd (adjusted)
Source: National Income and Expenditure (London, Central Statistical Office, 1963). Notes: a Total minus last two rows of Table 4.6, as proportion of total.
b Other services, less household expenditure abroad and final expenditure by private nonprofit making bodies, as proportion of total, from Tables 4.6 and 4.6. c From Table 4.7. d Adjusted as in Note 2, from Tables 4.7 and 4.9.
FUTURES October 1984
5 12
Testing the Gershuny hypothesis
Finally, information on consumer expenditure was analysed using data from National Income and Expenditure 1983.6 The data here have been rebased on 1980 for years later than 1978. The advantage of using this source is not only that it provides information over a set of years, but that it also includes imports directly. It is also possible to express the share of services using current or constant prices. The proportions of consumer expenditure spent on goods and on services are tabulated, at current and constant price data, in Table 3 for 1974, 1979 and a number of subsequent years. For the current-price data, there is a rise in the services proportion between 1974 and 1979 and between 1979 and 1980, with relative constancy thereafter. The constant-price data suggest a fairly constant volume share of services in consumer expenditure over the period, again giving support to the Gershuny hypothesis. Notes and references 1. 2. 3. 4. 5.
J. Gershuny, Ajer Industrial Society (London, Macmillan, 1978). J. Gershuny and I. Miles, The New Service Economy (London, Frances Pinter, 1983). Ibid. UK, Business Statistics Office, London, 1983. Business Monitor PA 1004, Input-Output Tables for the United Kingdom (London, Central Statistical Office). 6. National Income and Expenditure (London, Central Statistical Ofice, 1983). 7. Note that Gershuny and Miles did not expect a substantial shift away from services in the UK case in the 1970s because of low growth, op tit, reference 2.
FUTURES October 1994
TESTING THE GERSHUNY HYPOTHESIS Ciaran
Driver
This article tests the Gershuny hypothesis using UK inputoutput data. Gershuny has suggested that in many countries the share of consumer expenditure devoted to private or marketed services has not risen over time. Rather, consumers have tended to substitute durable goods and their own labour for purchased services. The UK data do provide support for this argument. Keywords: economics
+ UK; services; input-output
IT IS WIDELY BELIEVED that services are similar to luxury goods in that a higher proportion of expenditure is allocated to services over time as societies increase their income levels. This view has been challenged for the case of private services by Gershuny’ and Gershuny and Miles. ’ They argue that in many countries the share of consumer expenditure devoted to private or marketed services has not risen over time. Rather, consumers have tended to substitute durable goods and their own labour for purchased services. Examples of this are the replacement of live entertainment and personal service by domestic electrical equipment. The ‘Gershuny hypothesis’ may thus crudely be summarized as the view that manufactured commodities tend to be substituted for final services over time as the latter become relatively more expensive. When combined with a high (crosssection) income elasticity for services, the result is a stable, or even declining This is to be contrasted, Gershuny share of private services in consumption. demand (producer argues, with a higher share of services in intermediate services). The rise in service employment is to be seen as a result of this rise in producer services, coupled with a general low productivity growth in services. Gershuny and Miles3 provide figures based on EEC data (and indirectly for the UK, on Blue Book figures*) which show that the percentage of consumer expenditure on a number of categories of private services has remained stable or declined between 1970 and 1979. There are some advantages in looking not at these data but at the UK inputDr C. Driver is with the National Economic Development Office (NEDO), Millbank Tower, Millbank, London SW1 4QX, UK. The author is grateful to Derek Morris for helpful comments, to Andrew Kilpatrick for helpful comments and for providing data, and to Sandy Campbell for computational assistance. The views expressed are those of the author and not those of NEDO.
0016-3287/84/050508-05$03.000
1984
Butterworth&Co(Publishers)
Ltd
FUTURES October
1984
Testing the Gmhuny hypofhssis
509
output data.5 This allows for a broader look at how services constitute an input to many intermediate and final demand categories-not just consumer expenditure. It also allows the services functions to be better defined, so that ‘distribution’ for instance includes gross margins, which in the expenditure analysis is allocated to the goods or services themselves. One disadvantage is that entries in input-output tables are all in current prices, so that no indication is provided on changes in the volume share change in services over time. This question is addressed below. Another disadvantage, of course, is that the figures are only available for benchmark years, A further problem is that the 1979 tables have been calculated on the new (1980) Standard Industrial Classification and can, therefore, only be compared with a transformed version of the 1974 tables. These reworked tables have been supplied by the UK Central Statistical Office with a warning that some errors may have been made in the reallocation, Nevertheless the changes between the two tables should be reasonably indicative of actual changes, especially for broad categories. Intra-industry flows have been excluded from both tables, as is normal for comparisons over time. This lessens the possibility of spuriously identifying changes due to ownership changes within an industry. For each of the two years, the entries for manufacturing, construction and all services (except utilities and Public A~inistration) were compared using the commodity by commodity tables. The flows were expressed as coefficients by dividing through by the column totals. The array of differences between the tables (1979 minus 1974) was then compressed column-wise (using appropriate weights) and row-wise to yield Table 1. Comment Generally, the changes for the UK are quite small. The first column seems to give some credence to the view that private services are substituting to some extent for manufacturing in providing inputs to manufacturing. (Note that although intra-indust~ flows are excluded flows between manufacturing industries are not). This view is strengthened by the disaggregated figures (not shown) which indicate that the 0.012 increase in the coefficient for manufacturing’s use of private services is dominated by the ‘other services’ industry component, which might be thought of as producing competing service output to that often produced within manufacturing. In other words, there is some evidence here of ‘contracting out’, but the extent is very small. The second column gives figures on construction and, in this case, the increase in private services input is largely accounted for by distributors’ margins for reasons that are unclear. The remainder of the table shows little change in the intermediate coefficients, private services input to public services has increased, whereas public services input to private services has decreased. It is difficult to know what to make of this. Road transport has been included in public services, although most of the road haulage business is private. Increases in energy costs may be responsible for the reduction of transport input to many services. Turning to the final demand categories, manufacturing input to consumer expenditure has dropped sharply and is only partially compensated by a rise in
FUTURES October 1994
- 0.003 - 0.003 0.012 0.004
Manuf’g
Prlvate services 0.010 0.005 - 0.008 - 0.013
Const’n - 0.022 0.000 0.024 0.061
0.003 0.000 0.021 0.006
Pub& services - 0.039 0.005 0.022 - 0.006
Consumer expenditure 0.017 - 0.046 0.029 0.003
0.022 - 0.013 0.005 0.006
Public services Private services Total services
0.018 0.143 0.161
1974
0.072 0.123 0.195
1979
TABLE 2. SERVICES PROPORTION OF CONSUMER fMPORTS
._
- 0.012 - 0.002 - 0.033 0.016
Exports
etc (Industries 1-Q) and
Gross flxed capital formation
General government expenditure
The changes within any column do not add to zero due to changes in other entries not shown, viz Agriculture primary inputs. Distribution etc, Hotels etc, Sea Transport, Transport Services, Banking etc, Owning etc, and other services. Railways, Road Transport, Postal Services and Telecommunications.
Manufacturing Construction Private servicesb Public services’
_
TABLE 1.1979 TECHNOLOGICAL COEFFlClENTS MINUS 1974 TECHNOLOGICAL COEFFICIENTSa
3w p E,
5 11
Testing the Gershuny hypothesis
private service input. The size of the coefficient change is fairly small and does not support the rejection of the Gershuny hypothesis. Although the figure of 0.022 is nearly twice the corresponding figure in the manufacturing column, the reverse of the relationship that might be expected in the Gershuny hypothesis, more disaggregated data show that the positive sign of the change in this coefficient between 1974 and 1979 was entirely due to the category ‘Distribution etc and repairs’. The distribution component of this is by far the largest and is measured by gross margins of distributors which may be inclined to vary from one period to another. In terms of the distribution between consumer-oriented be and producer-related services, these categories might more reasonably associated with the producer-related category. On this basis the figures would be entirely consistent with Gershuny .’ The figures in Table 1 exclude imports, but it is possible to compare the commodity composition of imports between 1974 and 1979 using the inputoutput tables. The figures in Table 2 were obtained for consumer imports. The sharp rise in consumer imports of ‘public’ services is accounted for by air travel. Otherwise the figures are fairly stable over time. Changes in the other coefficients, while not strictly relevant to the Gershuny hypothesis may nevertheless be of some interest. Increased coefficients of manufacturing inputs to Gross Fixed Capital Formation (GFCF) along with the drop in construction input may indicate a switch towards capital deepening of the plant and machinery sort, rather than expansionary investment normally associated with new buildings and works. The rise of leasing may be a factor explaining why the private services increase in input to GFCF is all accounted for by ‘banking etc.’ On the exports front, the only aggregate bright spot (perhaps surprising) is public services (dominated by Air Transport). Within private services, banking etc and other services also increased their inputs to exports, but overall the change was negative. The deteriorating export performance of all sectors apart from public services is, presumably, partly attributable to the influence of North Sea oil on the exchange rate. TABLE 3. PROPORTIONS OF GOODS AND SERVICES IN CONSUMER EXPENDITURE
A. At current
Goodsa Services, adjusted for expenditure abroad and final expenditure by non-profit bodiesb B. At constant
1974
1979
198g
1991
1982
0.651
0.645
0.623
0.611
0.603
0.202
0.207
0.221
0.222
0.225
0.637 0.216
0.639 0.213
0.623 0.221
0.621 0.220
0.620 0.221
prices
(7980) prices
GoodsC Servicesd (adjusted)
Source: National Income and Expenditure (London, Central Statistical Office, 1963). Notes: a Total minus last two rows of Table 4.6, as proportion of total.
b Other services, less household expenditure abroad and final expenditure by private nonprofit making bodies, as proportion of total, from Tables 4.6 and 4.6. c From Table 4.7. d Adjusted as in Note 2, from Tables 4.7 and 4.9.
FUTURES October 1984
5 12
Testing the Gershuny hypothesis
Finally, information on consumer expenditure was analysed using data from National Income and Expenditure 1983.6 The data here have been rebased on 1980 for years later than 1978. The advantage of using this source is not only that it provides information over a set of years, but that it also includes imports directly. It is also possible to express the share of services using current or constant prices. The proportions of consumer expenditure spent on goods and on services are tabulated, at current and constant price data, in Table 3 for 1974, 1979 and a number of subsequent years. For the current-price data, there is a rise in the services proportion between 1974 and 1979 and between 1979 and 1980, with relative constancy thereafter. The constant-price data suggest a fairly constant volume share of services in consumer expenditure over the period, again giving support to the Gershuny hypothesis. Notes and references 1. 2. 3. 4. 5.
J. Gershuny, Ajer Industrial Society (London, Macmillan, 1978). J. Gershuny and I. Miles, The New Service Economy (London, Frances Pinter, 1983). Ibid. UK, Business Statistics Office, London, 1983. Business Monitor PA 1004, Input-Output Tables for the United Kingdom (London, Central Statistical Office). 6. National Income and Expenditure (London, Central Statistical Ofice, 1983). 7. Note that Gershuny and Miles did not expect a substantial shift away from services in the UK case in the 1970s because of low growth, op tit, reference 2.
FUTURES October 1994