The New Service Class

It sounds at first like another cruel tale from the world of corporate layoffs. Young IBM personnel specialist, 36, loses his job last July in cutbacks at the troubled computer giant. In dismay over leaving IBM -- the company where both his parents spent their careers -- young man plunges into the harsh job market. But there the miraculous happens: after a flurry of interviews, he is hired by Electronic Payment Services, a start-up Delaware company that processes credit-card transactions, for substantially more than his old salary. "I never knew how marketable I was," says Peter Dychkewich, the hero of this story. "But then I floated my resume, and the job I have now came up rather quickly."

His good fortune reflects the astonishing strength and diversity of U.S. service industries, which account for 70% of the country's economic activity. Even as manufacturers such as IBM and General Motors shed workers by the tens of thousands, service providers from banking to health care are taking on new employees. Just last week the Labor Department reported that service companies created 153,000 new jobs in October. That dwarfed the 40,000 positions that manufacturers added and helped reduce the unemployment rate to 5.8% -- the lowest in four years.

Not only does hiring by service firms represent nearly 90% of the 2.7 million jobs that the U.S. economy has produced this year, but many bear little resemblance to the low-paying gas-pumping and fast food-making positions that the word "services" has often brought to mind. Indeed, nearly half the new service jobs have gone to people with managerial, professional or technical skills, which has helped raise the average income of all service workers to close to the level of their manufacturing brethren.

Mark Strassman, the president of Don Richards Associates, a Washington-based firm that places middle managers and consultants in jobs, offers a useful illustration of the more elaborate ways in which the service sector has accommodated refugees from other parts of the economy: "There are so many complex choices in the mutual-fund world that you need an investment counselor," he says. "Computers change quickly, so you have to hire consultants. Law firms need more attorneys and the Arthur Andersens and KMPG Peat Marwicks are adding more accountants."

Of course, the growing demand for professionals tends to mask the fact that millions of service workers remain stuck in jobs like waiter or sales clerk that pay little more than the $4.25-an-hour minimum wage. "All you have to do is hire two Goldman Sachs partners and you probably distort the average wage scale throughout the service sector," quips Bruce Greenwald, a management professor at the Columbia Business School.

Put more precisely, work throughout the $6 trillion U.S. economy is skewing more sharply than ever along educational lines. "We're getting the good jobs and the bad jobs, but the middle jobs we're losing," says David Wyss, an economist at the DRI/McGraw Hill consulting firm. "Take something like health care. It pays great if you're a doctor or a nurse, but in both cases you need a special degree. Without one, there aren't any good wage jobs in that sector. Those who aren't well educated are still flipping hamburgers at McDonald's or working as janitors."