Accounting for Structural Change: Evidence from Two Centuries of U.S. Data

Historically, the reallocation of labor out of agriculture has been a dominant feature of structural change and economic growth. This paper proposes a framework to decompose this reallocation into components based on three of its key potential drivers: (i) non- homothetic preferences, (ii) sectoral differences in productivity growth rates, and (iii) sectoral differences in factor intensities in production. We then quantify the relative contribution of each of these drivers to U.S. structural change in the last two centuries. Our empirical results show that non-homothetic preferences and differential sectoral productivity growth have been very significant determinants of the labor reallocation process in the U.S. and that, over the last two centuries, their relative contributions have changed in important ways.