Quantifying the Growth in Services: the Role of Skills, Scale, and Female Labor Supply

This paper quanties the role that increases in the demand for skill intensive goods and services, the ecient scale of production of services, and female labor supply have in explaining the growth of services. We extend the model in Buera and Kaboski (2012a,b) to a two-person household model, incorporating a joint household decision on home and market production into the model, and allow for skill and sectoral biased technology progress. The calibrated analysis shows that the channels emphasized in the theory are quantitatively important. The rising scale of services, the rising demand for skill-intensive output stemming from rising incomes, skill-biased technical change, and rising female labor supply all play important quantitative roles and together account for the majority of the growth of services. The extended model provides a direct link between female labor supply and the growth of service economy, which is shown to be important in the data.