Structural Change with Time to Consume

Consumers allocate both income toward consumption of goods and services and off-market time toward activities using either goods or services. A model with time to consume embeds rich income effects, which has implications for the causal mechanism driving the rise in the services share of expenditure in the U.S. We estimate that consumers increasingly treat goods as luxuries relative to services, and this may result from the fact that the relative efficiency of using goods versus services, from the perspective of the consumer, has improved. Examining structural change through the model's lens, the rise in the services share of U.S. expenditure over the last 70 years is primarily attributable to the decline in the relative price of goods to services.