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Why Services Need an Industrial Policy

Enhancing productivity in services is notoriously difficult, and it is often impeded by a myriad of well-meaning licensing, safety, and other regulations. But if policymakers are serious about increasing the supply of good jobs for less-educated workers, services are where they must direct their efforts.

CAMBRIDGE – Good jobs have become a top priority worldwide. Policymakers in advanced and developing economies alike are stressing the need for well-paying employment opportunities with job security and career ladders. Globalization and technological change have made it painfully clear that this task cannot be left wholly to markets.

When policymakers talk about creating good jobs, they typically focus on things like minimum wages, collective bargaining, and investments in skills. But as important as such interventions are, they are not enough. Productivity is key. The supply of good jobs can increase only if the jobs that are created for the bottom and middle of the skill distribution become more productive, enabling higher pay, more autonomy, and brighter career prospects for those who hold them. Otherwise, mandating higher wages and better workplace conditions can leave less-educated workers priced out of employment opportunities. France, with its very high rate of youth unemployment, presents a cautionary tale.

Another problem, however, is that even when policymakers do talk about industrial and innovation policies that specifically target increased productivity and new technologies, good jobs are treated as a side issue. In the United States, the latest crop of such policies targets advanced manufacturing such as semiconductors (through the CHIPS Act) and green technologies (through the Inflation Reduction Act); and in Europe, the focus is on “digitalization” alongside the green transition. In both settings, it is simply assumed that good jobs will emerge as a byproduct of these programs, even though that is not their primary purpose.

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