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CPS1239 Valerie M.B. et al.
Difficulty in measuring them implies that they are treated as a residual after
subtracting the value of agriculture and industry from GDP. Given their
heterogeneous nature, services have been classified by literature in different
ways. One of the most commonly used classification systems is based on the
primary product of a firm or an enterprise: traditional or “stagnant” services
and modern, hi-tech, or “progressive” services. Another classification is based
on how services are used or consumed. In terms of their role in manufacturing,
services can be considered horizontal or vertical, and can be supplied either
for domestic or foreign use
Current productivity estimates of services may be biased due to
measurement issues. Simply defined, productivity is the amount of real
output produced by a given set of real inputs. This implies that the quantity of
output and inputs, as well as the prices used to deflate both components, must
be captured accurately. This is difficult to do in practice given the intangibility,
indivisibility and value-creation nature inherent in services. As a result, the
output of manufacturing would appear larger and its productivity higher
relative to services. Given the increasingly important role played by services in
the manufacturing process, the bias could be significant. Moreover,
intersectoral comparisons overlook the indirect contribution of services to the
productivity of other sectors. When specialization occurs, the resulting
economies of scale not only translate to greater output for manufacturing
firms, but also to lower prices for services that are used as inputs into
production, and this is missed because the linkages are not caputured.
Some definitions are in order. Servicification can come in two forms:
when services are bundled into a manufacturing good (servitization, as in
Miroudot and Cadestin, 2017), or through splintering (servification). The
splintering of production could manifest itself as manufacturing firms closing
their services departments and outsourcing. Essentially, this allows businesses
to subcontract part of their operations to independent suppliers located either
domestically or abroad (e.g., offshore outsourcing). The gradual
transformation of the manufacturing process to a service-oriented one is what
creates the symbiotic relationship between goods and services. Figure 1 shows
the various stages of servicification.

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