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The Early 21st Century U.S. Productivity Expansion is Still in Services

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  • Barry P. Bosworth
  • Jack E. Triplett

Abstract

Labour productivity in the U.S. non-farm business sector grew two and a half per cent per year during the 1995-2005 period, nearly double its growth rate over the previous two decades. Services sector labour productivity (LP) and multifactor productivity (MFP) grew more rapidly and substantially exceeded productivity accelerations in the goods sector. We show that the services sector accounted for three-quarters of U.S. MFP growth after 1995, and within services the contribution of MFP to LP growth exceeded the vaunted contribution of IT investment. We also find that the services sector has become even more important as the primary source of sustained productivity growth after 2000. In this study, we compute LP, MFP and contributions to growth accounts for 57 industries within the goods and services sectors, using the new NAICS-based data set. We also show that resource reallocations, which are a newly important factor in productivity analysis, have changed the relation between increases in industry productivity growth rates and aggregate and sector growth rates in surprising ways.

Suggested Citation

  • Barry P. Bosworth & Jack E. Triplett, 2007. "The Early 21st Century U.S. Productivity Expansion is Still in Services," International Productivity Monitor, Centre for the Study of Living Standards, vol. 14, pages 3-19, Spring.
    • Handle: RePEc:sls:ipmsls:v:14:y:2007:1
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    References listed on IDEAS

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    Cited by:

    1. Mizobuchi, Hideyuki, 2011. "The returns to scale effect in labour productivity growth," MPRA Paper 31152, University Library of Munich, Germany.
    2. Sasaki, Hiroaki, 2012. "Endogenous phase switch in Baumol's service paradox model," Structural Change and Economic Dynamics, Elsevier, vol. 23(1), pages 25-35.
    3. Sachiko Kazekami, 2017. "Do service sectors need core sectors to improve their productivity?," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 7(3), pages 389-410, December.
    4. Danny Leung & Yi Zheng, 2012. "What affects MFP in the long-run? Evidence from Canadian industries," Applied Economics, Taylor & Francis Journals, vol. 44(6), pages 727-738, February.
    5. Dumagan, Jesus C., 2013. "Relative Price Effects on Decompositions of Change in Aggregate Labor Productivity," Discussion Papers DP 2013-44, Philippine Institute for Development Studies.
    6. Rabeh Morrar & Faïz Gallouj, 2016. "The growth of the service sector in Palestine: the productivity challenge," Journal of Innovation Economics, De Boeck Université, vol. 0(1), pages 179-204.
    7. Oliner, Stephen D. & Sichel, Daniel E. & Stiroh, Kevin J., 2008. "Explaining a productive decade," Journal of Policy Modeling, Elsevier, vol. 30(4), pages 633-673.
    8. Talan B. Işcan, 2009. "Engel and Baumol: How much can they explain the rise of service employment in the United States?," Working Papers daleconwp2009-03, Dalhousie University, Department of Economics.
    9. Iscan Talan, 2010. "How Much Can Engel's Law and Baumol's Disease Explain the Rise of Service Employment in the United States?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-43, September.
    10. Bert Balk, 2014. "Dissecting aggregate output and labour productivity change," Journal of Productivity Analysis, Springer, vol. 42(1), pages 35-43, August.
    11. Hideyuki Mizobuchi, 2014. "Returns to scale effect in labour productivity growth," Journal of Productivity Analysis, Springer, vol. 42(3), pages 293-304, December.
    12. Chou, Yen-Chun & Hao-Chun Chuang, Howard & Shao, Benjamin B.M., 2014. "The impacts of information technology on total factor productivity: A look at externalities and innovations," International Journal of Production Economics, Elsevier, vol. 158(C), pages 290-299.
    13. Li, Qing & Wu, Yanrui, 2020. "Intangible capital, ICT and sector growth in China," Telecommunications Policy, Elsevier, vol. 44(1).
    14. Qing Li & Yanrui Wu, 2023. "ICT, technological diffusion and economic growth in Chinese cities," Empirical Economics, Springer, vol. 64(4), pages 1737-1768, April.
    15. Dukhabandhu Sahoo, 2012. "Efficiency of the Information and Technology Sector of India and Its Relevance to Indian Economic Growth," Journal of Infrastructure Development, India Development Foundation, vol. 4(1), pages 41-58, June.
    16. Maroto-Sánchez, Andrés & Cuadrado-Roura, Juan R., 2009. "Is growth of services an obstacle to productivity growth? A comparative analysis," Structural Change and Economic Dynamics, Elsevier, vol. 20(4), pages 254-265, December.
    17. Cuadrado-Roura, Juan R., 2016. "Service industries and regional analysis. New directions and challenges," INVESTIGACIONES REGIONALES - Journal of REGIONAL RESEARCH, Asociación Española de Ciencia Regional, issue 36, pages 107-127.
    18. Alistair Dieppe, 2021. "Global Productivity," World Bank Publications - Books, The World Bank Group, number 34015, December.

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    More about this item

    Keywords

    Labour productivity; Multifactor productivity; Service sector; Resource reallocations.;
    All these keywords.

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • F00 - International Economics - - General - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada

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