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Intersectoral Labor Mobility and the Growth of the Service Sector

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Author Info
Donghoon Lee () (Department of Economics, New York University)
Kenneth I. Wolpin () (Department of Economics, University of Pennsylvania)

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Abstract

One of the most striking changes in the U.S. economy over the past 50 years has been the growth in the service sector. In 1950, 57 percent of workers were employed in the service sector, by 1970 that figure had risen to 63 percent and by 2000 to 75 percent. While service sector employment grew by 2.2 percent per year faster than employment in the goods sector between 1968 and 2000, the real hourly wage in the service sector grew only by 0.23 percent more per year over the same period. In this paper, we assess whether or not the essential constancy of the relative wage implies that individuals face small costs of switching sectors and quantify the relative importance of labor supply and demand factors in the growth of the service sector. We specify and estimate a two-sector growth model with idiosyncratic and aggregate shocks that allows us to address these empirical issues in a unified coherent framework. Our estimates imply that there are large mobility costs; output in both sectors would have been double their current levels if these mobility costs had been zero. In addition, we find that demand side factors, that is, technical change and movements in product and capital prices, were responsible for the growth of the service sector.

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Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 04-036.

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Length: 69 pages
Date of creation: 04 Aug 2004
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Handle: RePEc:pen:papers:04-036

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Related research
Keywords: labor mobility service sector growth labor market equilibrium

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Find related papers by JEL classification:
D1 - Microeconomics - - Household Behavior
D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
J2 - Labor and Demographic Economics - - Demand and Supply of Labor
J6 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies

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  15. Altug, Sumru & Miller, Robert A, 1998. "The Effect of Work Experience on Female Wages and Labour Supply," Review of Economic Studies, Blackwell Publishing, vol. 65(1), pages 45-85, January. [Downloadable!] (restricted)
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Cited by:
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  1. Victor Aguirregabiria & Pedro mira, 2007. "Dynamic Discrete Choice Structural Models: A Survey," Working Papers tecipa-297, University of Toronto, Department of Economics. [Downloadable!]
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  2. Michael P. Keane & Kenneth I. Wolpin, . "Empirical Applications of Discrete Choice Dynamic Programming Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics. [Downloadable!] (restricted)
  3. Sullivan, Paul, 2008. "A Dynamic Analysis of Educational Attainment, Occupational Choices, and Job Search," MPRA Paper 4590, University Library of Munich, Germany, revised Jun 2008. [Downloadable!]
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  4. Matteo Iacoviello & Fabio Schiantarelli & Scott Schuh, 2007. "Input and output inventories in general equilibrium," Working Papers 07-16, Federal Reserve Bank of Boston. [Downloadable!]
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  5. Kwok Tong Soo, 2006. "What does the eclectic trade model say about the Samuelson conundrum?," Working Papers 004284, Lancaster University Management School, Economics Department. [Downloadable!]
  6. Shintaro Yamaguchi, 2008. "Career Progression and Comparative Advantage," Department of Economics Working Papers 2008-03, McMaster University. [Downloadable!]
  7. Patrick Kline, 2008. "Understanding Sectoral Labor Market Dynamics: An Equilibrium Analysis of the Oil and Gas Field Services Industry," Cowles Foundation Discussion Papers 1645, Cowles Foundation, Yale University. [Downloadable!]
  8. V. V. Chari & Patrick J. Kehoe, 2007. "The Heterogeneous State of Modern Macroeconomics: A Reply to Solow," NBER Working Papers 13655, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Bachmann, Ronald & Burda, Michael C., 2008. "Sectoral Transformation, Turbulence, and Labor Market Dynamics in Germany," IZA Discussion Papers 3324, Institute for the Study of Labor (IZA). [Downloadable!]
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  10. Beate Henschel & Carsten Pohl & Marcel Thum, 2008. "Demographic Change and Regional Labour Markets: The Case of Eastern Germany," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  11. Giovanni Gallipoli & Giulio Fella, 2006. "Education and Crime over the Lifecycle," Computing in Economics and Finance 2006 192, Society for Computational Economics. [Downloadable!]
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  12. Francisco J. Buera & Joseph Kaboski, 2008. "Scale and the origins of structural change," Working Paper Series WP-08-06, Federal Reserve Bank of Chicago. [Downloadable!]
  13. L. Rachel Ngai & Christopher A. Pissarides, 2005. "Structural Change in a Multi-Sector Model of Growth," IZA Discussion Papers 1800, Institute for the Study of Labor (IZA). [Downloadable!]
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  14. Guiso, Luigi & Pistaferri, Luigi & Schivardi, Fabiano, 2006. "Labour Adjustment: Disentangling Firing and Mobility Costs," CEPR Discussion Papers 5787, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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