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Productivity Growth in Service Industries - Has "Baumol's Disease" Really Been Cured?

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  • Jochen Hartwig

Abstract

Since the mid-nineties, U.S. labor productivity outgrows its European counterpart by a wide margin. Several recent studies have found that this result is brought about by relatively few service industries, where productivity growth has accelerated in the U.S., but not so in Europe. Based on this finding, TRIPLETT/BOSWORTH (2003) have asserted that 'Baumol's Disease', according to which imbalances in productivity growth between a 'progressive' (manufacturing) and a 'nonprogressive' (service) sector of the economy lead to constant expenditure shifts into the latter, 'has been cured' - at least in the U.S. The present paper challenges this statement, showing that there is only one genuine service industry with a lasting increase in productivity, namely wholesale and retail trade. Labor productivity in the U.S. retail industry has grown fast due to a recent proliferation of Wal-Mart-type 'big box' stores that would be practically impossible in Europe because of stricter zoning plans. Since this 'Wal-Mart effect' is likely to taper off sooner or later, it is more accurate to say that 'Baumol's Disease' has been protracted than to say that it has been cured.

Suggested Citation

  • Jochen Hartwig, 2006. "Productivity Growth in Service Industries - Has "Baumol's Disease" Really Been Cured?," KOF Working papers 06-155, KOF Swiss Economic Institute, ETH Zurich.
    • Handle: RePEc:kof:wpskof:06-155
    DOI: 10.3929/ethz-a-005277187
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    Cited by:

    1. Zheng, Jianghuai & Zhang, Lili & Wang, Yu, 2010. "The underdevelopment of service industry in China: an empirical study of cities in Yangtze River Delta," MPRA Paper 33125, University Library of Munich, Germany, revised Jun 2011.
    2. Jianghuai Zheng & Lili Zhang & Yu Wang, 2011. "The Underdevelopment of Service Industry in China: An Empirical Study of Cities in Yangtze River Delta," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 6(3), pages 413-446, September.
    3. Jochen Hartwig, 2014. "Testing Okun’s law with Swiss industry data," Applied Economics, Taylor & Francis Journals, vol. 46(29), pages 3581-3590, October.
    4. Jochen Hartwig, 2008. "Has Health Capital Formation Cured 'Baumol's Disease'? - Panel Granger Causality Evidence for OECD Countries," KOF Working papers 08-206, KOF Swiss Economic Institute, ETH Zurich.
    5. P.W. Daniels, 2011. "Service industries at a crossroads: some fragile assumptions and future challenges," The Service Industries Journal, Taylor & Francis Journals, vol. 32(4), pages 619-639, June.

    More about this item

    Keywords

    Productivity; Services sector; Baumol's Disease; Statistical artifacts;
    All these keywords.

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