The Service Economy in OECD Countries

Abstract

Improving the performance of the services sector is important to enhance aggregate economic growth. This is primarily since the service sector has become the quantitatively most important sector in all OECD economies. The growing role of services is not only the result of a resource re-allocation towards services, as the sector with low productivity growth. It is also related to demand side factors, such as a high income elasticity of demand for some services, demographic developments, the provision of certain services as public goods, and the growing role of services as providers of intermediate inputs. The empirical evidence points to several areas where employment and productivity growth in services is held back. For example, labour-intensive production in many services industries may reduce the potential for productivity growth. Innovation is held back by obstacles that are particularly relevant for services industries. The evidence also shows that the regulatory environment for services in product and labour markets may affect the scope for employment and productivity growth. However, policy should not necessarily look at services separately from manufacturing industries. In contrast, several services industries show characteristics and problems similar to those of manufacturing industries and the blurring of the two sectors is becoming more and more prevalent. Moreover, addressing some of the problems faced by services may also improve the performance of other industries, since services provide key intermediate inputs to such sectors.