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Title: The Rise of the Service Economy

Citation Type: Miscellaneous

Publication Year: 2006

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Abstract: We present four facts and a model explaining the rise of the service economy. First, the rising share of services in output is a recent phenomenon, starting around the mid-20th century. Second, it re ‡ects increases in both the relative price and relative quantity of services to commodities. Third, this rising share is entirely explained by the surge of skill-intensive services, and is contemporaneous with the increases in the relative quantity of skilled labor and the skill premium. Finally, individual services follow a distinct product cycle as an economy grows. They start being provided as market services, but are later produced at home with the purchase of manufactured intermediate inputs and durable goods. In our model, agents make decisions between the market and home provision over a continuum of wants that are satiated sequentially. The disutility of public consumption and economies of scale (in the use of specialized capital and skills) are the key elements explaining the rich dynamics of the service economy. If skilled labor has a comparative advantage in the production of newer services, the theory explains the late rise in the service economy characterized by rising relative prices and quantities of services, and growth in the relative quantity of skilled labor and the skill premium.

Url: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.604.1313&rep=rep1&type=pdf

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Authors: Buera, Francisco J; Kaboski, Joseph P

Publisher: Northwestern University

Data Collections: IPUMS USA

Topics: Labor Force and Occupational Structure, Other

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