By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.
Labor productivity growth in the service sector may be mismeasured
if workers with heterogeneous skills self-select into sectors. I
document with U.S. data that workers reallocated from manufacturing
earn more than incumbent workers in professional services
but less than incumbent workers in education, health, and public
services. A generalized quantitative Roy model predicts a selection
effect on labor productivity growth in professional services that
is 10 percentage points higher than what a conventional selection
model predicts. Overall, the selection effect contributes little to the
cost disease of services, which contrasts sharply with the hypothesis
in the literature.
