NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Rise of the Service Economy

Francisco J. Buera, Joseph P. Kaboski

NBER Working Paper No. 14822
Issued in March 2009
NBER Program(s):   EFG

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.

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Document Object Identifier (DOI): 10.3386/w14822

Published: Francisco J. Buera & Joseph P. Kaboski, 2012. "The Rise of the Service Economy," American Economic Review, American Economic Association, vol. 102(6), pages 2540-69, October.

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