Structural Transformation, the Mismeasurement of Productivity Growth, and the Cost Disease of Services

From Alywn Young:

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 substantial difference in the reported productivity growth of contracting goods and expanding services. Instrumenting with defense expenditures, I find that the elasticity of worker efficacy with respect to employment shares is substantially negative, albeit imprecisely estimated. The middle of the range of estimates suggests that the view that goods and services have similar productivity growth rates is a plausible alternative characterization of growth in developed economies. 

About ozidar

I'm an Assistant Professor of Economics at the University of Chicago Booth School of Business and a Faculty Research Fellow at National Bureau of Economic Research. You can follow me on twitter @omzidar.
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