The Rise of the Service Economy

57 Pages Posted: 29 Mar 2009 Last revised: 4 Jul 2010

See all articles by Francisco J. Buera

Francisco J. Buera

Washington University in St. Louis; National Bureau of Economic Research (NBER)

Joseph P. Kaboski

Ohio State University (OSU) - Economics; National Bureau of Economic Research (NBER); University of Notre Dame - Department of Economics

Date Written: March 2009

Abstract

This paper analyzes the role of specialized high-skilled labor in the growth of the service sector as a share of the total economy. Empirically, we emphasize that the growth has been driven by the consumption of services. Rather than being driven by low-skill jobs, the importance of skill-intensive services has risen, and this has coincided with a period of rising relative wages and quantities of high-skilled labor. We develop a theory where demand shifts toward ever more skill-intensive output as income rises, and because skills are highly specialized this lowers the importance of home production relative to market services. The theory is also consistent with a rising level of skill and skill premium, a rising relative price of services that is linked to this skill premium, and rich product cycles between home and market, all of which are observed in the data.

Suggested Citation

Buera, Francisco J. and Kaboski, Joseph P., The Rise of the Service Economy (March 2009). NBER Working Paper No. w14822. Available at SSRN: https://ssrn.com/abstract=1369058

Francisco J. Buera (Contact Author)

Washington University in St. Louis ( email )

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Campus Box 1208
Saint Louis, MO MO 63130-4899
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National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Joseph P. Kaboski

Ohio State University (OSU) - Economics ( email )

410 Arps Hall
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Columbus, OH 43210-1172
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Notre Dame - Department of Economics ( email )

Notre Dame, IN 46556
United States

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