Service Economy: Definition & Characteristics

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  • 0:01 Service Economy Defined
  • 0:27 Characteristics
  • 1:28 Sectors of Service Economy
  • 2:52 Lesson Summary
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Lesson Transcript
Instructor: Shawn Grimsley

Shawn has a masters of public administration, JD, and a BA in political science.

The service economy of the United States has become ever more important for economic growth and prosperity. In this lesson, you'll learn what the service economy is and some of its key characteristics. A short quiz follows.

Service Economy Defined

What does a lawyer, a doctor, a wedding planner, a shoe salesman, an investment banker, a comedian, a waitress, and a college professor all have in common? They all work in the service economy. In the simplest of terms, a service economy is an economy where the primary economic activity is the provision of services rather than the production of goods. The United States pretty much has a service economy because most of the growth of the U.S. economy is tied to services.


It should be no surprise to you that the focus on service rather than manufacturing is the fundamental characteristic of a service economy. For example, our shoe salesman's job is to sell shoes to consumers, not design and manufacture shoes. Our doctor doesn't create medicine or medical devices but rather provides diagnosis and treatment of injuries and disease.

Another important characteristic is that the service economy tends to provide a great deal of opportunities for freelancers and entrepreneurs. It's a lot cheaper to start a lawn care business than to open up a factory to manufacture lawn mowers.

On the other hand, much of the growth in the service economy concerns jobs that pay quite less than traditional manufacturing jobs. While some service sector employees, like doctors, lawyers, and investment bankers, may earn very large salaries with great benefits, a great many of service sector jobs pay low and offer very limited, if any, opportunities for professional growth, such as jobs in retail and food services.

Sectors of Service Economy

A developed service economy can be quite diverse. The U.S. Census Bureau has broken down the service economy into 13 different sectors, including:

  • Utilities
  • Transportation & warehousing
  • Information
  • Finance and insurance
  • Real estate and rental & leasing services
  • Professional, scientific, and technical services
  • Management of companies and enterprises
  • Administrative & support, and waste management & remediation services
  • Educational services
  • Health and social assistance
  • Arts, entertainment, and recreation
  • Accommodation and food services

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