Innovation In The (Low-Tech) Service Sector

When you think of innovative sectors of the economy, it’s possible that the service sector is not what you think of (when I talk of the service sector, I mean retail stores and dry cleaners rather than banks and consultancies).

New research from MIT’s Sloan School suggests that view might need recalibrating, and indeed that the sector can help to spur both innovation and growth in jobs.

Understanding innovation

To better understand what drives innovation in the sector, the researchers focused on the supply chain that services the more glamorous side of the service sector that is so often the focus of attention.  The researchers believe their effort is one of the first efforts to actively isolate such a large and powerful services subcategory.

“Our new categorization of U.S. industries has revealed a large and dynamic supply chain economy which plays a crucial role in innovation and in the creation of well-paying jobs,” they say. “We estimate that the supply chain industries comprise more than 37 percent of all jobs. This is compelling when positioned in the context of job creation policy efforts that focus primarily on manufacturing, which accounts for only 10 percent of employment.”

They believe that it’s vital that this sector is better understood so that the kind of policy instruments that are designed to boost job creation and support innovation, work in the sector.

For instance, this might include the creation of unique policies that are distinct to the low-tech services that are typically used for personal consumption from the high-tech (and high-wage) service sector.

The researchers developed a policy briefing to help guide officials in their dealings with this sector.

“Those working on policies to help spur innovation have a new set of questions to consider,” they contend. “For instance, the subcategory of suppliers of traded services has the highest wages, the highest presence of STEM jobs in the economy, and has experienced fast growth. Policy initiatives that support supply chain services could play an important role in fostering innovation, accelerating job growth and driving U.S. competitiveness.”