The Past and Future of U.S. Structural Change: Compositional Accounting and Forecasting

Andrew Foerster, Andreas Hornstein, Pierre Daniel Sarte and Mark Watson

No 34338, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We explore the evolving significance of different production sectors within the U.S. economy since World War II and provide methods for estimating and forecasting these shifts. Using a compositional accounting approach, we find that the well-documented transition from goods to services is primarily driven by two compositional changes: 1) the rise of Intellectual Property Products (IPP) as an input producer, replacing Durable Goods almost one-for-one in terms of input shares in virtually all sectors; and 2) a shift in consumer spending from Nondurable Goods to Services. A structural model replicating these shifts reveals that the rise of IPP at the expense of Durable Goods is largely explained by increases in the efficiency of IPP inputs used in production: input-biased technical change. Trend variations in sectoral total factor productivity, and their attendant effects on relative prices and income, are the main driver of evolving consumption patterns. Both reduced-form and structural forecasts project these trends to continue over the next two decades, albeit at lower rates, indicating a slower pace of structural change.

JEL-codes: E17 E23 E27 (search for similar items in EconPapers)
Date: 2025-10
Note: EFG
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