Income and Inequality: The Role of the Service Sector in the Changing Distribution of Income.

• Author: Whaples, Robert

For about two decades now, income in the United States has slowly become less equally distributed. The extent and causes of this trend have been hotly debated among scholars, in the press, and, recently, on the campaign stump. At the December, 1992 Economic Summit, the changing income distribution was given almost as much attention as economic growth and health care spending. Leading Clinton administration officials, such as Secretary of Labor Robert Reich, are weighing policies designed to reverse the trend.

Crafting successful policies requires a basic understanding of the underlying causes of this complex phenomenon. The leading explanations focus on shifts in the demand for skilled and unskilled labor in conjunction with changing technology, changing product demand and the globalization of the economy. There are important subplots about demographic shifts (for example, increases in female labor force participation and the percent of single-mother headed households) and measurement errors. Less noticed has been the widening disparity in the distribution of income across different sized communities, as, for example, higher-paying producer services have tended to locate in metropolitan areas, while lower-paying consumer services have been more evenly distributed across space.

These issues are a Gordian knot. It is virtually impossible to remove one thread for examination, since each is securely fastened to the others. Alexander's sword won't suffice, a surgeon's scalpel is required to carefully unravel the interacting causes.

Cathy Kassab's study is an effort to focus on one strand in this knot. Her study, which grew out of a dissertation completed at Pennsylvania State University, examines the impact of changing levels of employment in the service and manufacturing sectors. It considers how growth in the service sector affects the community income level and its distribution, how changes in the industrial mix of communities affect the distribution of income across places, and how the impact of the service sector on income compares with that of manufacturing.

The bulk of the empirical work examines a sample of communities in the Mid-atlantic region. This region was chosen because the transition from a manufacturing-based to a service-based economy occurred there with great clarity during the 1970s, and because the Mid-Atlantic also has a relatively large rural population. Data from the United States Census of Population for 1970 and 1980...