Monthly Labor Review April 2002 17

Business Services

Employment in business services:

a year of unprecedented decline

Rachel Krantz

Rachel Krantz is an

economist in the

Division of Current

Employment Statistics,

Office of Employment

and Unemployment

Statistics, Bureau of

Labor Statistics.

After nearly a decade of unparalleled

growth, the number of jobs in business

services peaked in September 2000 and

then began the steepest job loss in the 43-year

history of the industry. In the 12 months between

September 2000 and September 2001, employment

in business services fell by 384,000, or 4 percent.1

The industries within business services were

affected to varying degrees by the recent economic downturn, which was officially declared a

recession halfway through the 12-month period

covered in this article.2 Thus, the employment decline in business services led the beginning of

the recession by 6 months. Chart 1 shows the

difference between the rate of change in employment from September 2000 to September 2001 and

the average annual rate of change in employment

from September 1995 to September 2000. With the

exception of miscellaneous equipment rental and

leasing, which showed almost no difference, all

component industries were notably weak relative

to their recent performance history. (For more industry details and data, see table 1.)

Two components of business services account

for 59 percent of its employment: personnel supply services and computer and data-processing

services. (See chart 2.) Since September 2000,

these industries and (to a lesser extent) advertising were the weakest industries within business

services. Another large industry, miscellaneous

business services, also was weak relative to its

recent past. (See chart 3.) This article examines

employment trends over the last several years in

these four industries and offers reasons for the

varying degree of their vulnerability in the recent

economic climate.

Personnel supply services

As both the largest employer and the weakest

component, personnel supply services has

driven the recent job decline in business services.

Employment in personnel supply services posted

its largest annual decline in absolute terms, down

459,000, or 12 percent, between September 2000

and September 2001. Job losses were concentrated in help supply services, an industry that

primarily provides temporary workers to other

businesses. Employment agencies—the other

component of personnel supply services, which

includes intermediaries that match employers with

employees—also showed job losses, but to a

lesser degree. To better understand the concentration of job losses in personnel supply services,

it is necessary to first understand industry employment trends in help supply services during

the last few years.

The recent growth in temporary employment

is best understood in the context of a competitive

business environment: competition has forced

Falling employment in personnel services

contributed to the greatest decline in employment

in business services in the last 43 years;

slowing of growth in computer services and job losses

in miscellaneous business services played a smaller role
Business Services

18 Monthly Labor Review April 2002

Table 1. Employment in business services and annual rates of change, selected years, seasonally adjusted

 Annual percent change

 September September September September

 1995 2000 2001 1995 to

September

2000

 Total business services ..................... 6,957 9,965 9,581 –384 7.5 –3.9 –11.4

....................................................................

Advertising ....................................................... 235 305 292 –13 5.4 –4.3 –9.7

Credit reporting and collection services .................. 123 160 167 7 5.4 4.4 –1.0

Mailing, reproduction, and stenographic services ...... 281 328 321 –7 3.1 –2.1 –5.2

Services to buildings .......................................... 888 995 997 2 2.3 .2 –2.1

Miscellaneous equipment rental and leasing ............. 231 282 293 11 4.1 3.9 –.2

Personnel supply services ............................... 2,544 3,947 3,488 –459 9.2 –11.6 –20.8

Employment agencies...................................... 294 409 387 –22 6.8 –5.4 –12.2

Help supply services .................................... 2,248 3,547 3,106 –441 9.6 –12.4 –-22.0

....................................................................

Computer and data-processing services ................. 1,122 2,124 2,200 76 13.6 3.6 –10.0

Computer-programming services ....................... 254 526 534 8 15.7 1.5 –14.2

Prepackaged software...................................... 187 308 322 14 10.5 4.5 –6.0

Computer integrated systems design .................. 134 226 238 12 11.0 5.3 –5.7

Data processing and preparation ........................ 225 286 303 17 4.9 5.9 1.0

Information retrieval services and ......................

computer-related services, n.e.c. ..................... 237 678 701 23 23.4 3.4 –20.0

......................................................................

Miscellaneous business services .......................... 1,534 1,837 1,818 –19 3.7 –1.0 –4.7

Detective, guard, and armored car services ......... 537 599 618 19 2.2 3.2 1.0

Security systems services ............................... 50 80 69 –11 9.9 –13.8 –23.7

Business services, n.e.c. .................................... 860 1,068 1,041 –27 4.4 –2.5 –6.9

 1 Includes other industries not shown separately.. ... 2 n.e.c. = not elsewhere classified.

Change,

September

2000 to

September

2001

Difference

September

2000 to

September

2001

Industry

1

2

2

1

Advertising

Credit and collection services

Mailing services

Services to buildings

Miscellaneous equipment rental

Personnel supply services

Computer services

Miscellaneous business services 

-25.0 -20.0 -15.0 -10.0 -5.0 0.0

Percent

Difference between rate of change,

September 2000–September 2001, and

average annual rate of change, September

1995–September 2000

Chart 1. Difference in rates of change of employment in business services, September 2000—

 September 2001 and September 1995—September 2000 

Business services component
Monthly Labor Review April 2002 19

businesses to respond quickly and efficiently to their changing labor needs. Through the 1990s, businesses did this by

contracting for more temporary workers and moving toward

just-in-time labor practices. Businesses thereby created buffers of temporary employees, whose numbers they contracted

and expanded to meet their labor demands while insulating

permanent employees from economic fluctuations.3

The temporary-staffing industry rode this trend, growing

at an annual rate of 12 percent in the period from just after the

recession to September 2000. (See chart 4.) The expansionary

trend was prominent in manufacturing, as well as in other

industries. A study by Marcelo Estevão and Saul Lach estimates that temporary workers accounted for about 4 percent

of the manufacturing sector’s workforce in 1997, compared

with only 1 percent in 1992.4 Demand for professional staffing

services also grew during this period, and firms increasingly

specialized in providing temporary managerial, financial, and

technical professionals to meet the demand.5 By September

2000, when employment in help supply services was at its

peak, temporary workers had become a regular fixture in many

businesses.

Temporary employment began to fall in October 2000. Logically, temporary workers would be the first to lose their jobs

during times of economic hardship, as well as the first hired

during times of renewed, but uncertain, economic strength.

Evidence supports this idea: Lewis M. Segal and Daniel G.

Sullivan showed that, over the course of a business cycle,

temporary help employment acts as a leading indicator in determining the movement of aggregate employment.6 Thus,

temporary job losses signaled economic weakness and raised

the following questions: How well are the recent temporary

job losses distributed across the economy? and To what extent do they reflect general economic weakness, as opposed

to weakness in the manufacturing sector alone?

These questions are not easily answered. While today’s

temporary staff work across the economy, the percentage of

temporary workers providing services to each sector is unknown. However, data from surveys taken in 1995 and 1997

indicate that about one-third of agency temporaries worked in

the manufacturing sector.7 The percentage of recent job losses

of workers placed in the manufacturing sector by help supply

services was of particular interest in early 2001, given that the

sector experienced a severe downturn that affected the health

of the national economy.

Employment in employment agencies, the other component of personnel supply services, peaked in November 2000

and fell 7 percent between then and September 2001. This

decline reflected firms’ diminished hiring activity, as well as a

reduced demand for employee-employer matching intermediaries relative to the demand in the recent past, when unemployment rates across the Nation reached record lows. Not

surprisingly, a decline in the help-wanted advertising index

accompanied the drop in employment agencies’ employment.8

Computer and data-processing services

Relative to their previous 5-year trends, the recent weakness

in computer and data-processing services falls second to that

of personnel supply services. (See chart 1.) Employment in

computer and data-processing services continued to grow

between September 2000 and September 2001, although at a

greatly reduced rate compared with that of the previous few

years. This industry accounts for 23 percent of employment

in business services. Its recent slowing of growth, coupled

with its size, identifies computer services as an important factor in business services’ overall weakness. However, the weakness in computer services is misleading without knowledge

of industry trends in the 1990s.

Beginning in the mid-1990s, expansion of the Internet fueled demand for computer services as companies scrambled

to develop Web sites and network their computers. As the

year 2000 approached, concerns about Y2K intensified demand for computer services. Employment in computer and

data-processing services reflects this heightened demand: in

1994 through 1996, employment grew at an average annual

rate of 13 percent; in 1997 through 1999, the average annual

growth rate increased to 15 percent. Perhaps because of the

extensive preparations, the year 2000 arrived without the accompanying computer glitches many had feared, and employment growth slowed to 8 percent for the year. The industry

slowdown continued in 2001, as business investment receded.

Employment in computer services declined to a 2 percent annual growth rate during the first 9 months of 2001.

The computer and data-processing services industry is

subdivided into nine more specific industries. Several are

worth noting because of their contribution to the change in

trend. Between September 2000 and September 2001, information retrieval services and computer-related services, not elsewhere classified, together formed one of computer services’

weakest components.9 Computer-programming services and

prepackaged software also were weak. (See chart 5.)

The combined industries of information retrieval services

and computer-related services, not elsewhere classified, were

the 1990s’ growth engine in computer services. Employment

in these industries grew at an annual rate of 25 percent in 1996

through 1999, slowed to 11 percent in 2000, and slowed further, to an annual rate of 2 percent in the first 9 months of 2001.

Late 1990s employment growth in the two industries clearly

reflects both expansion of the Internet and concerns regarding Y2K. As the popularity of the Internet exploded, companies offering access to various kinds of information and database sources harnessed the Internet’s potential as a natural
Business Services

20 Monthly Labor Review April 2002

All other

12%

Services to buildings

10%

Personnel supply services

36%

Computer and data-processing services

23%

Miscellaneous business services

19%

Chart 2. Distribution of employment in business services, September 2001

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Chart 3. Employment in selected business services industries, 1988—2001

Thousands Thousands

Shaded areas indicate recessions.

Personnel supply services

Miscellaneous business services

Computer and data-processing services
Monthly Labor Review April 2002 21

Chart 4. Employment in help supply services, 1988—2001

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

1,000

1,500

2,000

2,500

3,000

3,500

4,000

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Thousands

Shaded areas indicate recessions.

Thousands

Chart 5. Employment in selected computer and data-processing services , 1988—2001

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

0

100

200

300

400

500

600

700

800

0

100

200

300

400

500

600

700

800

Computer-programming services

Prepackaged software

Information retrieval services

and computer-related services, n.e.c.

Thousands

Shaded areas indicate recessions.

Thousands
Business Services

22 Monthly Labor Review April 2002

vehicle of information exchange and market expansion. Accomplishing this feat required consultants or in-house experts capable of integrating Internet portal systems with businesses’ existing systems. Similarly, Y2K concerns generated

additional demand for the services of computer consultants

(which are a part of computer services, not elsewhere classified). The successful passing of the Y2K event and the beginning of the economic downturn both contributed to the

stark slowdown in demand for computer consultants and

Internet services.

 On average, computer-programming services experienced double-digit rates of employment growth from 1993 to

2000, reaching a high of 20 percent in 1998. The industry

continued to expand through April 2001, and then, between

April and September 2001, it contracted at a 6 percent annual

rate. The approach of the new millennium generated unprecedented demand for computer-programming services, as companies hurried to adapt their software to prevent dating problems associated with the year 2000. Since the arrival of the

new millennium and the slowing of the economy, demand for

computer-programming services has waned relative to its recent record levels.

Employment growth in prepackaged software slowed from

an annual rate of 12 percent in the 12 months ending September

2000 to 5 percent in the 12 months ending September 2001. The

slowdown is undoubtedly linked to businesses’ cutbacks in

spending on technology in light of their large Y2K technology

investments and a weakening economy. Household purchases,

too, played an important role in reduced demand for software.

As computer technology improved markedly during the 1990s

and prices fell, personal-computer markets expanded steadily.

Whereas only 22 percent of households had personal computers in 1990, 58 percent had them by 2000.10 Increasing demand

for new software accompanied this growth in computer sales,

until demand for both products slowed in late 2000. The slowing

economy certainly deterred some households from purchasing

a personal computer; however, it is also likely that most

households which wanted and could afford a computer had

already purchased one.

Despite the slowdown in computer services, it was not

until July 2001 that the industry lost jobs. The losses continued,

and computer services recorded a net employment decline for

the third quarter. This contraction followed decelerating growth

in the first and second quarters and contrasts with industry

growth over more than a decade, a period that includes the

recession of the early 1990s. At that time, employment growth in

computer services slowed, but did not contract.

Miscellaneous business services

As the third-largest component within business services, and

one that has shown recent weakness, miscellaneous business services experienced job losses that were an important

factor in the broader industry’s recent decline. Chart 6 shows

miscellaneous business services’ major components and

their relative sizes.

The diverse industry category business services, not elsewhere classified, the majority employer within miscellaneous

business services and one that has shown recent weakness,

accounted for most of the job losses in the broader series.

This industry includes establishments such as telemarketing

firms, convention bureaus and decorators, and inventorying

services firms. It is difficult to know which of the various

types of businesses in the industry drove job losses, although

the recession and associated cutbacks in business travel

would have slowed demand for many services.

Security systems services showed the greatest relative

weakening within miscellaneous business services during the

year ended September 2001. However, this industry, which

monitors and maintains fire and burglar alarms, accounts for

less than 4 percent of employment in miscellaneous business

services.

In stark contrast to all other components of miscellaneous

business services, detective, guard, and armored car services continued to add jobs throughout the September 2000–

01 period. Growth accelerated sharply in the fourth quarter of

2001, as businesses responded to the September 11 terrorist

attacks with expanded security measures.

Advertising

Although advertising accounts for only 3 percent of business services employment, its recent slowing of growth and

contraction rank it among the industry’s weakest components.

(See chart 1.) Internet, print, radio, and television advertising

were all affected as businesses across the economy slashed

their advertising budgets. Recent cutbacks in print advertising contrast with 2000, when dot-coms, technology companies, and financial companies spent freely on advertising.11

While employment in advertising grew at an average annual

rate of 3.2 percent between the 1990–91 recession and the

industry’s September 2000 peak, it shrank at an annual rate of

2.6 percent in the first half of 2001. (See chart 7.) During that 6-

month period, spending on advertising fell 6 percent below its

2000 level.1 2 Reduced employment in advertising parallels job

losses in printing and publishing, as well as in paper and

allied products manufacturing.

WHILE THE MAJORITY OF BUSINESS SERVICES’ JOB LOSSES between

September 2000 and September 2001 are traceable to falling

employment in personnel supply services, three other components also contributed to the industry’s weakness during

that period. Miscellaneous business services and advertising

each lost jobs, and computer and data-processing services
Monthly Labor Review April 2002 23

Chart 7. Employment in advertising, 1988—2001

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

175

200

225

250

275

300

325

175

200

225

250

275

300

325

Thousands

Shaded areas indicate recessions.

Thousands

Chart 6. Employment in miscellaneous business services industries, 1988—2001

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

0

200

400

600

800

1,000

1,200

0

200

400

600

800

1,000

1,200

Thousands

Shaded areas indicate recessions.

Thousands

Business services, n.e.c.

Detective, guard, and armored car services

All other miscellaneous business services
Business Services

24 Monthly Labor Review April 2002

showed sharply slower job growth. Employment trends in these

industries reflect the weakening business environment, which

led businesses to trim their temporary staffs, cut advertising

expenses, and curtail investments in information technology.

The 1990s brought growth in the employment of temporary workers, as well as a technology boom and preparations

related to Y2K fears. The first of these factors, coupled with

the difficulty of measuring job losses among temporary work1 The figures are from the Current Employment Statistics (CES)

program of the Bureau of Labor Statistics. The program produces

estimates of all employees on nonfarm payrolls, except in private

households, based on a monthly survey of about 300,000 worksites.

Data from the survey appear in the Bureau’s monthly periodical Employment and Earnings. CES data in this article are seasonally adjusted

unless otherwise indicated.

2

 In November 2001, the National Bureau of Economic Research

(NBER) announced that the recession had begun in March 2001. (See

NBER report, on the Internet at http://www.nber.org/cycles/

recessions.html (visited Jan. 3, 2002).

3

 See Katherine Abraham, “The Role of Flexible Staffing Arrangements in Short Term Workforce Adjustment Strategies,” in Robert

Hart, ed., Employment, Unemployment and Hours of Work (London:

George Allen and Unwin, 1998); and Report on the American Workforce

(U.S. Department of Labor, 1999), pp. 18–24.

4

 Marcelo Estevão and Saul Lach, “The Evolution of the Demand

for Temporary Help Supply Employment in the United States,” NBER

working paper no. w7427, December 1999.

5

 Rick Melchionno, “The changing temporary work force: Managerial, professional, and technical workers in the personnel supply services

industry,” Occupational Outlook Quarterly, Spring 1999, pp. 24–32.

ers by economic sector, means that it is difficult to know how

many job losses in help supply services are directly related to

the manufacturing sector’s decline and how many are due to

general economic weakness. In addition, although employment growth in computer and data-processing services has

slowed recently, this is not surprising, considering the late

1990s’ unprecedented demand for computer services generated by Y2K preparations and a rapid expansion of the Internet.

6

 Lewis M. Segal and Daniel G. Sullivan, “The temporary labor

force,” Economic Perspectives, March 1, 1995, pp. 2–19.

7

 Anne Polivka, “Tables: An Examination of CPS Data on Flexible

Staffing Arrangements,” paper presented at the National Labor Market Information Conference, Missoula, Montana, May 2000.

8

 See “Help-Wanted Index Drops 5 Points,” The Business Knowledge

Network (The Conference Board, Sept. 27, 2001); on the Internet at http://

www.conference-board.org/search/dpress.cfm?pressid=4663 (visited

Oct. 4, 2001).

9

 For the purposes of this analysis, and due to the 1999 reclassification of many establishments from computer-related services, not

elsewhere classified, to information retrieval systems, it makes sense

to sum these employment series.

10 Greg Ip, “Sated, Will Consumers Hurt the Economy?” The Wall

Street Journal, June 11, 2001.

11 Lucia Moses, “Danger signs popping up across the country,” Editor & Publisher, March 12, 2001, pp. 7–8.

12 “Sucked into quicksand,” The Economist, Oct. 27, 2001, pp.

59–60.

NOTES