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Intersectoral Labor Mobility and the Growth of the Service Sector

Author

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  • Donghoon Lee

    (Department of Economics, New York University)

  • Kenneth I. Wolpin

    (Department of Economics, University of Pennsylvania)

Abstract

One of the most striking changes in the U.S. economy over the past 50 years has been the growth in the service sector. In 1950, 57 percent of workers were employed in the service sector, by 1970 that figure had risen to 63 percent and by 2000 to 75 percent. While service sector employment grew by 2.2 percent per year faster than employment in the goods sector between 1968 and 2000, the real hourly wage in the service sector grew only by 0.23 percent more per year over the same period. In this paper, we assess whether or not the essential constancy of the relative wage implies that individuals face small costs of switching sectors and quantify the relative importance of labor supply and demand factors in the growth of the service sector. We specify and estimate a two-sector growth model with idiosyncratic and aggregate shocks that allows us to address these empirical issues in a unified coherent framework. Our estimates imply that there are large mobility costs; output in both sectors would have been double their current levels if these mobility costs had been zero. In addition, we find that demand side factors, that is, technical change and movements in product and capital prices, were responsible for the growth of the service sector.

Suggested Citation

  • Donghoon Lee & Kenneth I. Wolpin, 2004. "Intersectoral Labor Mobility and the Growth of the Service Sector," PIER Working Paper Archive 04-036, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  • Handle: RePEc:pen:papers:04-036
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    More about this item

    Keywords

    labor mobility; service sector growth; labor market equilibrium;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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