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Relative productivity growth and the secular "decline" of U.S. manufacturing

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  • Marquis, Milton
  • Trehan, Bharat

Abstract

There has been considerable debate about the causes of the "decline" of U.S. manufacturing over the post-war period. We show that the behavior of employment, prices and output in manufacturing relative to services over this period can be explained by a two-sector growth model in which productivity shocks are the only driving forces. Household preferences turn out to play a key role in our model. The data are consistent with a specification where households are unwilling to substitute goods for services (the estimated elasticity of substitution is statistically indistinguishable from zero), so the economy adjusts to differential productivity growth entirely by re-allocating labor across sectors.

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  • Marquis, Milton & Trehan, Bharat, 2010. "Relative productivity growth and the secular "decline" of U.S. manufacturing," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(1), pages 67-74, February.
    • Handle: RePEc:eee:quaeco:v:50:y:2010:i:1:p:67-74
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    2. Bridgman, Benjamin, 2012. "The rise of vertical specialization trade," Journal of International Economics, Elsevier, vol. 86(1), pages 133-140.
    3. Naoko Hara & Munechika Katayama & Ryo Kato, 2014. "Rising Skill Premium?: The Roles of Capital-Skill Complementarity and Sectoral Shifts in a Two-Sector Economy," Bank of Japan Working Paper Series 14-E-9, Bank of Japan.
    4. Luigi Bonatti & Andrea Fracasso, 2012. "The costs of rebalancing the China-US co-dependency," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 120(1), pages 59-106.
    5. Mark Partridge & Alexandra Tsvetkova & Michael Betz, 2021. "Are the most productive regions necessarily the most successful? Local effects of productivity growth on employment and earnings," Journal of Regional Science, Wiley Blackwell, vol. 61(1), pages 30-61, January.

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