Structural transformation, the mismeasurement of productivity growth, and the cost disease of services

Alwyn Young

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: If workers self-select into industries based upon their relative productivity in different tasks, and comparative advantage is aligned with absolute advantage, then the average efficacy of a sector's workforce will be negatively correlated with its employment share. This might explain the difference in the reported productivity growth of contracting goods and expanding services. Instrumenting with defense expenditures, I find the elasticity of worker efficacy with respect to employment shares is substantially negative, albeit imprecisely estimated. The estimates suggest that the view that goods and services have similar productivity growth rates is a plausible alternative characterization of growth in developed economies.

JEL-codes: E23 E24 H56 J24 O41 O47 (search for similar items in EconPapers)
Date: 2014-11
New Economics Papers: this item is included in nep-gro and nep-mac
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Citations: View citations in EconPapers (58)

Published in American Economic Review, November, 2014, 104(11), pp. 3635-3667. ISSN: 0002-8282

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