Relating Labor Productivity to Wages in Service Sectors: A Long-Run Approach

Jeff Huther

Economic Inquiry, 2000, vol. 38, issue 1, 110-22

Abstract: This article introduces a systematic approach to the study of unbalanced productivity growth that can be readily applied across any sectors with unbalanced productivity growth. This approach is based on a cointegrating relationship between sectoral productivity and real sectoral compensation. Strong support for this relationship is found in U.S. service sectors from 1947 to 1993. The results show that Baumol's theory of "cost disease" due to unbalanced productivity growth has been a widespread phenomenon and that the relationship between labor productivity and real compensation is well represented with general forms of the production function. Copyright 2000 by Oxford University Press.

Date: 2000
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