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Structural Change within the Service Sector and the Future of Baumol's Disease

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  • Duernecker, Georg
  • Herrendorf, Berthold
  • Valentinyi, Akos

Abstract

Structural change reduces aggregate productivity growth when it leads to the reallocation of production to industries with low productivity growth. We document that this so-called Baumol's disease considerably reduced productivity growth in the postwar U.S. We capture the effect of Baumol's disease on productivity growth with a novel model of structural change that disaggregates the service sector into services with low and high productivity growth. The data imply that the two service subsectors are substitutes. We find that the substitutability limits how important services with low productivity growth may become, which bounds the future effect of Baumol's disease.

Suggested Citation

  • Duernecker, Georg & Herrendorf, Berthold & Valentinyi, Akos, 2017. "Structural Change within the Service Sector and the Future of Baumol's Disease," CEPR Discussion Papers 12467, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12467
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Juan Carlos Conesa & Pau S. Pujolas, 2019. "The Canadian productivity stagnation, 2002–2014," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 52(2), pages 561-583, May.
    2. Akos Valentinyi, 2018. "Quantity Measurement and Balanced Growth in Multi-Sector Growth Models," 2018 Meeting Papers 837, Society for Economic Dynamics.
    3. Khan, Muhammad Aamir, 2020. "Cross sectoral linkages to explain structural transformation in Nepal," Structural Change and Economic Dynamics, Elsevier, vol. 52(C), pages 221-235.
    4. Zsofia Barany & Christian Siegel, 2021. "Engines of sectoral labor productivity growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 39, pages 304-343, January.
    5. Fang, Lei & Herrendorf, Berthold, 2021. "High-skilled services and development in China," Journal of Development Economics, Elsevier, vol. 151(C).
    6. Sasaki, Hiroaki, 2020. "Is growth declining in the service economy?," Structural Change and Economic Dynamics, Elsevier, vol. 53(C), pages 26-38.
    7. Aum, Sangmin & Lee, Sang Yoon (Tim) & Shin, Yongseok, 2018. "Computerizing industries and routinizing jobs: Explaining trends in aggregate productivity," Journal of Monetary Economics, Elsevier, vol. 97(C), pages 1-21.
    8. Gallipoli, Giovanni & Makridis, Christos A., 2018. "Structural transformation and the rise of information technology," Journal of Monetary Economics, Elsevier, vol. 97(C), pages 91-110.
    9. Berthold Herrendorf & Richard Rogerson & Ákos Valentinyi, 2018. "Structural Change in Investment and Consumption: A Unified Approach," NBER Working Papers 24568, National Bureau of Economic Research, Inc.
    10. Duernecker, Georg & Herrendorf, Berthold, 2018. "On the allocation of time – A quantitative analysis of the roles of taxes and productivities," European Economic Review, Elsevier, vol. 102(C), pages 169-187.
    11. Luca Eduardo Fierro & Alessandro Caiani & Alberto Russo, 2021. "Automation, job polarisation, and structural change," Working Papers 2021/09, Economics Department, Universitat Jaume I, Castellón (Spain).
    12. Goldin, Ian & Koutroumpis, Pantelis & Lafond, François & Winkler, Julian, 2020. "Why is productivity slowing down?," MPRA Paper 99172, University Library of Munich, Germany.
    13. Pugsley, Benjamin, 2018. "Comment on “Structural transformation and the rise of information technology” by Gallipoli and Makridis," Journal of Monetary Economics, Elsevier, vol. 97(C), pages 111-116.
    14. Moro, Alessio & Valdes, Carlo, 2019. "Stuctural transformation in general equilibrium," MERIT Working Papers 2019-049, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    15. Rubini, Loris & Moro, Alessio, 2019. "Stochastic Structural Change," MPRA Paper 96144, University Library of Munich, Germany.
    16. Berthold Herrendorf & Richard Rogerson & Akos Valentinyi, 2019. "Growth and the Kaldor Facts," Review, Federal Reserve Bank of St. Louis, vol. 101(4), pages 259-276.
    17. Georg Duernecker & Miguel Sanchez-Martinez, 2021. "Structural Change and Productivity Growth in Europe - Past, Present and Future," CESifo Working Paper Series 9323, CESifo.
    18. Jesus Fernandez-Villaverde & Lee Ohanian, 2018. "The Lack of European Productivity Growth: Causes and Lessons for the U.S," PIER Working Paper Archive 18-024, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 07 Sep 2018.
    19. Alistair Dieppe, 2021. "Global Productivity," World Bank Publications, The World Bank, number 34015, September.

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    More about this item

    Keywords

    Baumol's Disease; Productivity Growth Slowdown; Service Sector; structural change;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • 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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