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An Analysis of the Economic Impact of the Service Sector on Underemployment in Major Metropolitan Areas in the United States

Northern Illinois University

John J. Phelps

Center for Governmental Studies at Northern Illinois University

Robert G. Sheets

Center for Governmental Studies at Northern Illinois University

In this study unique measures of underemployment are used to investigate the impact of the service sector on underemployment in a cross-sectional, multivariate analysis of large metropolitan areas in the United States. Underemployment is measured by the inability of labour market participants to earn poverty-level incomes over a full-year (with a separate underemployment measure for each possible cause: low wages; involuntary part-time employment; and, intermittent employment). This study provides evidence that service employment growth will tend to increase underemployment as a result of low wages or involuntary part-time employment. As economic development officials increasingly target service industries as a source of employment growth for metropolitan areas, the results of this study suggest that these same policies that rejuvenate areas and increase tax revenues may raise the concentration of those employed with poverty earnings.

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