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Structural Transformation, the Mismeasurement of Productivity Growth, and the Cost Disease of Services

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  • Alwyn Young

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.

Suggested Citation

  • Alwyn Young, 2014. "Structural Transformation, the Mismeasurement of Productivity Growth, and the Cost Disease of Services," American Economic Review, American Economic Association, vol. 104(11), pages 3635-3667, November.
  • Handle: RePEc:aea:aecrev:v:104:y:2014:i:11:p:3635-67
    Note: DOI: 10.1257/aer.104.11.3635
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    Citations

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    Cited by:

    1. Chaoran Chen, 2017. "Untitled Land, Occupational Choice, and Agricultural Productivity," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(4), pages 91-121, October.
    2. Elie Gray & André Grimaud & David Le Bris, 2018. "The Farmer, the Blue-collar, and the Monk: Understanding Economic Development through Saturations of Demands and Non-Homothetic Productivity Gains," CESifo Working Paper Series 6970, CESifo Group Munich.
    3. Jonas Hjort & Jonas Poulsen, 2017. "The Arrival of Fast Internet and Employment in Africa," NBER Working Papers 23582, National Bureau of Economic Research, Inc.
    4. Zsófia L. Bárány & Christian Siegel, 2018. "Job Polarization and Structural Change," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(1), pages 57-89, January.
    5. Wolfgang Britz & Roberto Roson, 2018. "Exploring Long Run Structural Change with a Dynamic General Equilibrium Model," Working Papers 2018: 12, Department of Economics, University of Venice "Ca' Foscari".
    6. Gray, Elie & Grimaud, André & Le Bris, David, 2018. "The Farmer, the Blue-collar, and the Monk: Understanding economic development through saturations of demands and non-homothetic productivity gains," TSE Working Papers 18-906, Toulouse School of Economics (TSE).
    7. Philippe Frocrain & Pierre-Noël Giraud, 2017. "The evolution of tradable and non-tradable employment: evidence from France," Working Papers hal-01695159, HAL.
    8. Böhm, Michael Johannes, 2017. "The Price of Polarization: Estimating Task Prices under Routine-Biased Technical Change," IZA Discussion Papers 11220, Institute for the Study of Labor (IZA).
    9. Bernard Hoekman, 2017. "Trade in services: Opening markets to create opportunities," WIDER Working Paper Series 031, World Institute for Development Economic Research (UNU-WIDER).
    10. Wolfgang Britz & Roberto Roson, 2018. "G-RDEM: A GTAP-based recursive dynamic CGE model for long-term baseline generation and analysis," Working Papers 2018: 11, Department of Economics, University of Venice "Ca' Foscari".
    11. Roberto Roson, 2017. "Understanding the Global Dynamics of Sectoral Labor Productivity," Working Papers 2017:15, Department of Economics, University of Venice "Ca' Foscari".
    12. Zsófia L. Bárány & Christian Siegel, 2018. "Job Polarization and Structural Change," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(1), pages 57-89, January.

    More about this item

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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