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Engel and Baumol: How much can they explain the rise of service employment in the United States?

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  • Talan B. Işcan

    (Department of Economics, Dalhousie University)

Abstract

High income elasticity of demand for services and low income elasticity of demand for food (Engel’s law), and relatively slow productivity growth in the service sectors (Baumol’s disease) have been viewed as key drivers of rising share of service sector employment in the United States during the twentieth century. How much of the rising share of services can be explained by these two forces? A calibrated model of structural change shows that jointly Engel’s law and Baumol’s disease could explain about two thirds of the reallocation of labor into services.

Suggested Citation

  • Talan B. Işcan, 2009. "Engel and Baumol: How much can they explain the rise of service employment in the United States?," Working Papers daleconwp2009-03, Dalhousie University, Department of Economics.
    • Handle: RePEc:dal:wpaper:daleconwp2009-03
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    File URL: http://wp.economics.dal.ca/RePEc/dal/wpaper/DalEconWP2009-03.pdf
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    References listed on IDEAS

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