Structural Transformation, the Mismeasurement of Productivity Growth, and the Cost Disease of Services
American Economic Review · 2014 · Volume 104 · Issue 11
Abstract
If workers self-select into industries based upon their relative productivity in different tasks, and comparative advantage is aligned with absolute advantage, then the average efficacy of a sector's workforce will be negatively correlated with its employment share. This might explain the difference in the reported productivity growth of contracting goods and expanding services. Instrumenting with defense expenditures, I find the elasticity of worker efficacy with respect to employment shares is substantially negative, albeit imprecisely estimated. The estimates suggest that the view that goods and services have similar productivity growth rates is a plausible alternative characterization of growth in developed economies.
Keywords
Macroeconomics: Production, Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital, Aggregate Labor Productivity, National Security and War, Human Capital, Skills, Occupational Choice, Labor Productivity, One, Two, and Multisector Growth Models, Empirical Studies of Economic Growth, Aggregate Productivity, Cross-Country Output Convergence
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