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Lagging Productivity Growth in the Service Sector: Mismeasurement, Mismanagement or Misinformation?

Author

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  • Dinah Maclean

Abstract

While the service sector has been growing rapidly as a share of total output, aggregate productivity growth has generally lagged behind that of the goods sector. In this report, the author assesses a range of explanations for lagging service sector productivity growth. Measurement problems appear to be greater in services than in goods, and a detailed analysis of output measurement in the three service industries experiencing the lowest productivity growth suggests that underestimation is likely significant in finance, insurance and real estate, in community, business and personal services, and in trade. A lower level of competition in services compared with goods may also have affected productivity growth, though this impact is very hard to quantify. Explanations based on the service sector's relatively greater investment in new technology, however, are found to account at best for lagging productivity growth only in the last decade. Finally, the hypothesis that service industries are incapable of high productivity growth because of their labour-intensive nature is shown to be inapplicable to much of the service sector. The report concludes by considering which service industries are showing the greatest growth. It is found that much of the increased service-sector output has been in areas that have shown relatively strong productivity growth, or where problems of measurement are particularly severe. Moreover, there is considerable potential for greater productivity growth in areas that may have shown slower productivity increases in the past, because of such factors as technological change and ongoing adjustments to past deregulation.

Suggested Citation

  • Dinah Maclean, 1997. "Lagging Productivity Growth in the Service Sector: Mismeasurement, Mismanagement or Misinformation?," Staff Working Papers 97-6, Bank of Canada.
  • Handle: RePEc:bca:bocawp:97-6
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    References listed on IDEAS

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    1. David, P.A., 1989. "Computer And Dynamo: The Modern Productivity Paradox In A Not-Too Distant Mirror," The Warwick Economics Research Paper Series (TWERPS) 339, University of Warwick, Department of Economics.
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    3. Baumol, William J, 1972. "Macroeconomics of Unbalanced Growth: Reply," American Economic Review, American Economic Association, vol. 62(1), pages 150-150, March.
    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. Francois, Joseph & Reinert, Kenneth A, 1995. "The Role of Services in the Structure of Production and Trade: Stylized Facts from a Cross-Country Analysis," CEPR Discussion Papers 1228, C.E.P.R. Discussion Papers.
    6. Durand, Rene, 1994. "An Alternative to Double Deflation for Measuring Real Industry Value-Added," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 40(3), pages 303-316, September.
    7. repec:bin:bpeajo:v:24:y:1993:i:1993-2m:p:71-159 is not listed on IDEAS
    8. Zvi Griliches, 1992. "Output Measurement in the Service Sectors," NBER Books, National Bureau of Economic Research, Inc, number gril92-1.
    9. Martin Neil Baily & Robert J. Gordon, 1988. "The Productivity Slowdown, Measurement Issues, and the Explosion of Computer Power," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 347-432.
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    Citations

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    Cited by:

    1. 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.
    2. Soledad Núñez & Miguel Pérez, 2000. "La rama de servicios en España: un análisis comparado," Working Papers 0007, Banco de España;Working Papers Homepage.
    3. repec:uae:wpaper:9801 is not listed on IDEAS
    4. Luis Rubalcaba Bermejo & Álvaro Ortíz Vidal-Abarca & Tomás Mancha Navarro, 1998. "Crecimiento, productividad y servicios avanzados en Europa: Implicaciones para la Política Económica," Working Papers 01/98, Instituto Universitario de Análisis Económico y Social.

    More about this item

    Keywords

    Productivity; Recent economic and financial developments;

    JEL classification:

    • L80 - Industrial Organization - - Industry Studies: Services - - - General

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