Working Paper: NBER ID: w14822
Authors: Francisco J. Buera; Joseph P. Kaboski
Abstract: 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.
Keywords: Service Economy; High-Skilled Labor; Consumption of Services; Skill Premium
JEL Codes: D13; J22; J24; O14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increase in income (E25) | Increase in demand for skill-intensive services (J24) |
| Increase in demand for skill-intensive services (J24) | Increase in demand for high-skilled workers (J24) |
| Increase in demand for high-skilled workers (J24) | Increase in skill premium (J24) |
| Increase in skill premium (J24) | Increase in relative price of services (E31) |
| Increase in income (E25) | Increase in growth of service sector (O14) |
| Decrease in importance of home production (D13) | Increase in demand for market services (D49) |