DP12467 Structural Change within the Service Sector and the Future of Baumol's Disease

Author(s): Georg Duernecker, Berthold Herrendorf, Akos Valentinyi
Publication Date: November 2017
Date Revised: October 2019
Keyword(s): Baumol's Disease, Productivity Growth Slowdown, Service Sector, structural change
JEL(s): O41, O47, O51
Programme Areas: Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12467

Structural change contributed to the past slowdown of U.S. productivity growth by reallocating production to stagnant services sectors with low productivity growth. We ask what the future effect of structural change on productivity growth will be. To provide an answer, we study structural change among goods and different services. We find that there are substitutes for stagnant services, which prevents them from taking over the economy in the long run. Our calibrated model implies that in the future structural change will reduce aggregate productivity growth in the U.S. only by about half as much as in the past.