Abstract
The characteristic of the “service economy” is the rise to dominance of the service sector in terms of employment and value added shares. We track this rise during the second half of the twentieth century for the U.S., more precisely the period from 1970 to 2005. Following seminal work by Baumol (1967) the rise is often attributed to growing productivity differentials between the economic sectors. The causes of the productivity differentials are, however, controversial. Inspired by Georgescu-Roegen’s (1971) evolutionary approach to production theory, the present paper explores whether differences in the energetic features of the sectors’ production technologies contribute to the growing sectorial productivity differentials. For the data for our period of analysis it turns out that a close relationship indeed exists between the sectors’ incentives for substituting relatively cheap energy for ever more expensive labor and their labor productivity gains. In highly energy-dependent sectors an increasing energy/labor ratio has been driving productivity growth while this was not the case in the service sector. The paper closes with a short discussion of what the finding may imply for the future of the service economy.
Highlights
Structural change in the economy is an inevitable concomitant of economic growth
In the previous section we have argued that differing physical, energetic, production conditions of the economic sectors contributed to the sectorial change in the U.S characterized by a further rise of the service economy
The Autoregressive Distributed Lags (ARDL) bounds testing procedure involves two steps: (i) we use the semiparametric test by Phillips and Perron (1988) to ensure that the variables are not integrated of order 2 [I (2)]; (ii) we apply an unrestricted error correction model (ECM) to test for cointegration among the variables and display the short-run dynamics
Summary
Structural change in the economy is an inevitable concomitant of economic growth. Its impact is visible, not least, in the shifting employment and value added shares of the different sectors of the economy. They result in unequal incentives for the sectors to take advantage of the era of relatively cheap energy through substituting energy for increasingly more costly labor inputs. It serves to specify a testable hypothesis, namely that during the period 1970– 2005 the sectors’ unequal energetic substitution incentives correspond to differences in the extent to which productivity changes can be attributed to a changing energy/labor ratio.
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