How Much Can Engel's Law and Baumol's Disease Explain the Rise of Service Employment in the United States?
High income elasticity of demand for services and low income elasticity of demand for food (Engel's law), and relatively slow productivity growth in the service sectors (Baumol's disease) have been viewed as key drivers of rising share of services in employment in the United States during the 20th century. How much of the rising share of services can be explained by these two forces? A calibrated model of structural change shows that jointly Engel's law and Baumol's disease could explain about two-thirds of the reallocation of labor into services.
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Volume (Year): 10 (2010)
Issue (Month): 1 (September)
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