Productivity in the U.S. services sector: new sources of economic growth


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The services powerhouse: Increasingly vital to world economic growth

We also gathered data on international trade i. We obtain two main findings. First, in the past 15 years, the contribution of the service sector to employment and value added our measure of output has outweighed that of the manufacturing sector.


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As technological change makes manufacturing more capital and skill intensive, this sector creates fewer jobs. The so-called third industrial revolution led by services has therefore implied that, in the past decade, industrialized countries have experienced a sustained growth of employment and value added in the service sector, and this generation of jobs has helped to outweigh the decrease in the number of jobs in manufacturing.

Second, we observe that despite the trends in employment and value added, manufacturing is still the largest sector in terms of exports, innovation, and productivity growth. These patterns are not surprising, as most services are still not traded.

Indeed, although international trade in services is increasing, the observed expansion in world trade was mainly driven by manufacturing products. Furthermore, most technological advances have taken place in the manufacturing sector, and productivity growth has focused mainly on this sector. In fact, several studies attribute the slowdown of productivity in the United States to the large increase of the service sector. The first finding that we report has been documented extensively in the literature, yet the second finding is less well understood.

An interesting aspect of our second finding is that differences in the evolution of the manufacturing and service sectors with respect to trade, innovation, and productivity growth in the next few years may determine patterns of development and industrialization across countries. In fact, we already observe interesting differences in these evolutions between the two sectors in our sample.

First, services are becoming more globalized.

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Productivity may increase for several reasons. For example, new technology or training may help workers produce more goods in the same amount of time or with the same amount of resources. Likewise, policy changes may allow firms to operate more efficiently. Decreases in productivity could result from factors that impact inputs, such as changes in wage rates or the cost of intermediate goods.

Bibliography - Productivity: What Is It? How Is It Measured? What Has Canada's Performance Been?

Temporary decreases in productivity may also occur when businesses expand faster than their output increases or businesses do not adjust to declining output. Productivity growth can lead to increases in national income and improvements in the standard of living. Ford greatly increased productivity by using interchangeable parts and a moving assembly line.

Ford chose to use the increased productivity to sell the Model T for a lower price than competing vehicles. As a result, more people could afford an automobile.

Increases in productivity do not always lead to lower prices for consumers or increases in output. Also, increases in productivity may not always lead to increases in total economic activity.

For example, productivity increases achieved through automation may lead to worker layoffs and overall reductions in employment. In other words, productivity growth is necessary but not sufficient for increases in total economic activity.

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This chapter highlights trends in transportation productivity by exploring three measures of productivity: labor productivity; multifactor productivity; and per passenger-mile or freight ton-mile revenue. Productivity measures answer important questions about the performance of the transportation sector—for example, how efficiently transportation providers move people and goods, and whether the value of their services grew more rapidly than the costs of the inputs they use.

The two main measures of transportation productivity include: labor single-factor productivity and multifactor productivity MFP. Labor productivity measures the output per unit of labor input, while multifactor productivity measures the output per unit as a weighted average of multiple factors, such as fuel, equipment, and materials.

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The multifactor productivity ratio provides a more comprehensive measure of economic performance but is complex and difficult to isolate specific factor impacts on output. Labor productivity measures continue to have broad appeal because they are both simple to understand and, in many instances, labor is the major driver in changes to productivity. These measures show industry and sector changes in inputs, outputs, and productivity. BLS produces a productivity statistic for all industries aggregated in its value-added studies.

The three sets of productivity statistics differ due to methodological differences between the programs. The largest difference is in the measurement of output. IPS takes a micro-level approach and uses deflated sales, values, or physical quantities for output.

The value-added approach subtracts the value of the inputs used during the production process e. The Integrated Accounts take the BLS measures a step further by measuring the contribution of labor, capital, and other factors of production to economic growth. The integrated accounts show the contribution of labor, capital, multifactor productivity to economic growth.

These productivity measures assume that the quality of output does not change. For example, output measures, such as ton-miles and passenger-miles, measure the quantity of output but do not measure the quality of output. If the industry produced less to improve quality, productivity would appear to be declining due to less output being produced per unit of input. To measure labor productivity , BLS measures outputs by industry and divides the output by paid labor hours.

Increased productivity creates economic growth

When an industry has multiple products or services, the outputs are weighted by value. BLS indexes the ratios to a common base year to allow for comparisons over time. BLS measures show industry responses to regulations and policies, changes in labor costs, and competitive pressures; the measures also enable comparisons across industries.

Figure illustrates changes in labor productivity for selected transportation sectors from to Air transportation experienced the largest increase in labor productivity among all transportation modes, growing The gains during this period come from legacy carriers adopting aggressive labor-saving initiatives and from large output gains among low-cost carriers. Rail transportation experienced the second largest gains in labor productivity, increasing by These gains resulted from labor-saving technologies automating operational and administrative tasks. Labor-saving initiatives in air and rail resulted in a decline in labor hours with continued growth in output over the to period.

During the same period, smaller labor productivity increases occurred in truck Labor productivity in pipeline transportation grew 5. Both transit transportation output and the amount of labor hours required to produce that output increased from to , but labor productivity declined Gross output is the total value of goods and services produced by the sector. Gross output includes the value of the goods and services used to produce the sector output.

A Management-Based Approach to Service Sector Productivity

For example, the share of IT services exports contributed by the United States fell from 45 percent in to 8 percent in , with the United States now behind the Euro area, India, and Ireland in this category. France fell from being the top financial services exporter in to eighth place by In fact, when considered on a value-added basis, services trade made up As a simple example, a pharmaceutical product produced in country X is a manufactured good that may incorporate intellectual property from country Y a service and a plastic bottle from country Z a good , in addition to the value added in country X itself.

However, the standard international system of accounts tracks the flow of both intermediate and final goods and services each time they cross a national border, based on the characterization of the good or service at the time. As shown in figure 9, the domestic content of manufactured exports is much lower than the domestic content of services exports.


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For example, the German value added to German manufacturing exports was Increasingly, services are being delivered—that is, traded, both within borders and across borders—digitally. This trend will likely continue to increase as more people connect to the internet and trade digitally with the rest of the world. A healthy services sector is no less necessary for a strong economy than a healthy manufacturing sector. She is based out of Bengaluru. Cover image by: Orlando Hoetzel.

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Productivity in the U.S. services sector: new sources of economic growth Productivity in the U.S. services sector: new sources of economic growth
Productivity in the U.S. services sector: new sources of economic growth Productivity in the U.S. services sector: new sources of economic growth
Productivity in the U.S. services sector: new sources of economic growth Productivity in the U.S. services sector: new sources of economic growth
Productivity in the U.S. services sector: new sources of economic growth Productivity in the U.S. services sector: new sources of economic growth
Productivity in the U.S. services sector: new sources of economic growth Productivity in the U.S. services sector: new sources of economic growth
Productivity in the U.S. services sector: new sources of economic growth Productivity in the U.S. services sector: new sources of economic growth
Productivity in the U.S. services sector: new sources of economic growth Productivity in the U.S. services sector: new sources of economic growth
Productivity in the U.S. services sector: new sources of economic growth Productivity in the U.S. services sector: new sources of economic growth
Productivity in the U.S. services sector: new sources of economic growth

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