The Role of Services in U.S. Production and Trade: an Analysis of Social Accounting Data for the 1980s

Abstract

Services represent the dominant feature of modern “industrial” economies. In such economies, the service sectors account for a substantial share of both employment and production. This pattern has been viewed in some circles of the economic policy community as cause for alarm. In the academic community, it has been viewed as cause for research. In the economic literature, explanations for the growing importance of services range from inelastic consumer demand for services to productivity growth differentials and the role of services in production.² Much of the attention in this literature has been devoted to changes in relative prices for services, and in particular for consumer services. Such changes are highly correlated with income levels, and can be explained by the pattern of productivity growth, relative factor intensities, or scale economies. In this chapter, we take a different approach. Rather than focus explicitly on productivity and price trends, we direct our attention to the structural relationship of the service sectors to production in the U.S. economy, with some examination of the apparent change in this structural relationship in the 1980s. We attempt to shed light on the role of services in production by working within a social accounting framework.

We would like to thank Clinton Shiells for comments and Greg Alward and James Franklin for data.