Minerva
Ulrich Witt
Professor of Economics
Past Director of the Evolutionary Economics Group,
Max Planck Institute of Economics, Jena
Ulrich Witt
Recent work

The Rise of the "Service Economy" in the Second Half of the Twentieth Century and its Energetic Contingencies

The characteristic of the "service economy" is the rise of the service sector which now dominates national employment and value added shares. In this paper jointly written with Christian Gross we highlight the role of relatively cheap energy for making this rise possible, using US data for the period 1970 – 2005. We also discuss what our finding may imply for the future of the service economy.

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The Rise of the "Service Economy" in the Second Half of the Twentieth Century and its Energetic Contingencies

The characteristic of the "service economy" is the rise to dominance of the service sector in terms of employment and value added shares. We track this rise during the second half of the 20th century for the U.S., more precisely the period from 1970 to 2005. Following seminal work by Baumol (1967) the rise is often attributed to growing productivity differentials between the economic sectors. The causes of the productivity differentials are, however, controversial. Inspired by Georgescu-Roegen’s (1971) evolutionary approach to production theory, the present paper explores whether differences in the energetic features of the sectors’ production technologies contribute to the growing sectorial productivity differentials. For the data for our period of analysis it turns out that a close relationship indeed exists between the sectors’ incentives for substituting relatively cheap energy for ever more expensive labor and their labor productivity gains. In highly energy-dependent sectors an increasing energy/labor ratio has been driving productivity growth while this was not the case in the service sector. The paper closes with a short discussion of what the finding may imply for the future of the service economy.

The full text of the article just published in the Journal of Evolutionary Economics can be downloaded for free under:
https://link.springer.com/article/10.1007/s00191-019-00649-4


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