American Economic Review: Vol. 102 No. 6 (October 2012)


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The Rise of the Service Economy

Article Citation

Buera, Francisco J., and Joseph P. Kaboski. 2012. "The Rise of the Service Economy." American Economic Review, 102(6): 2540-69.

DOI: 10.1257/aer.102.6.2540


This paper analyzes the role of specialized high-skilled labor in the disproportionate growth of the service sector. Empirically, the importance of skill-intensive services has risen during a period of increasing relative wages and quantities of high-skilled labor. We develop a theory in which demand shifts toward more skill- intensive output as productivity rises, increasing the importance of market services relative to home production. Consistent with the data, the theory predicts a rising level of skill, skill premium, and relative price of services that is linked to this skill premium. (JEL J24, L80, L90)

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Buera, Francisco J. (Federal Reserve Bank of Minneapolis and UCLA)
Kaboski, Joseph P. (U Notre Dame)

JEL Classifications

J24: Human Capital; Skills; Occupational Choice; Labor Productivity
L80: Industry Studies: Services: General
L90: Industry Studies: Transportation and Utilities: General

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