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

Author

Listed:
  • 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

    as
    1. Barry P. Bosworth & Jack E. Triplett, 2007. "Services Productivity in the United States: Griliches's Services Volume Revisited," NBER Chapters,in: Hard-to-Measure Goods and Services: Essays in Honor of Zvi Griliches, pages 413-447 National Bureau of Economic Research, Inc.
    2. D. W. Jorgenson & Z. Griliches, 1967. "The Explanation of Productivity Change," Review of Economic Studies, Oxford University Press, vol. 34(3), pages 249-283.
    3. Carol A. Corrado & Charles R. Hulten & Daniel E. Sichel, 2006. "Intangible Capital and Economic Growth," NBER Working Papers 11948, National Bureau of Economic Research, Inc.
    4. Zvi Griliches, 1998. "Productivity, R&D, and the Data Constraint," NBER Chapters,in: R&D and Productivity: The Econometric Evidence, pages 347-374 National Bureau of Economic Research, Inc.
    5. Susanto Basu & Robert Inklaar & J. Christina Wang, 2011. "The Value Of Risk: Measuring The Service Output Of U.S. Commercial Banks," Economic Inquiry, Western Economic Association International, vol. 49(1), pages 226-245, January.
    6. Susanto Basu & John G. Fernald & Nicholas Oulton & Sylaja Srinivasan, 2003. "The case of the missing productivity growth: or, does information technology explain why productivity accelerated in the United States but not the United Kingdom?," Working Paper Series WP-03-08, Federal Reserve Bank of Chicago.
    7. Susanto Basu & John G. Fernald, 2008. "Information and communications technology as a general purpose technology: evidence from U.S. industry data," Economic Review, Federal Reserve Bank of San Francisco, pages 1-15.
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    10. Berndt, Ernst R & Wood, David O, 1975. "Technology, Prices, and the Derived Demand for Energy," The Review of Economics and Statistics, MIT Press, vol. 57(3), pages 259-268, August.
    11. Erik Brynjolfsson & Lorin M. Hitt, 2000. "Beyond Computation: Information Technology, Organizational Transformation and Business Performance," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 23-48, Fall.
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    13. Kevin J. Stiroh, 2002. "Information Technology and the U.S. Productivity Revival: What Do the Industry Data Say?," American Economic Review, American Economic Association, vol. 92(5), pages 1559-1576, December.
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    Full references (including those not matched with items on IDEAS)

    Citations

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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. 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.
    3. Sasaki, Hiroaki, 2012. "Endogenous phase switch in Baumol's service paradox model," Structural Change and Economic Dynamics, Elsevier, vol. 23(1), pages 25-35.
    4. repec:spr:eurase:v:7:y:2017:i:3:d:10.1007_s40822-017-0073-1 is not listed on IDEAS
    5. Bert Balk, 2014. "Dissecting aggregate output and labour productivity change," Journal of Productivity Analysis, Springer, vol. 42(1), pages 35-43, August.
    6. 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.
    7. 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.
    8. 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.
    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. 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.
    11. Hideyuki Mizobuchi, 2014. "Returns to scale effect in labour productivity growth," Journal of Productivity Analysis, Springer, vol. 42(3), pages 293-304, December.

    More about this item

    Keywords

    Labour productivity; Multifactor productivity; Service sector; Resource reallocations.;

    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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