Structural Change within the Service Sector and the Future of Baumol's Disease
53 Pages Posted: 12 Dec 2017 Last revised: 31 Oct 2019
Date Written: November 2017
Abstract
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.
Keywords: Baumol's Disease, Productivity Growth Slowdown, Service Sector, structural change
JEL Classification: O41, O47, O51
Suggested Citation: Suggested Citation