See Inside October 2006

To Serve Man

The services sector proves to be a key to prosperity

Weak productivity growth became a major concern in the U.S. beginning in the late 1970s, when overall productivity in the country slowed considerably. Researchers attributed most of the slowdown to the service sector, where more than eight out of 10 Americans now work. Services, economists believed, were not amenable to rapid productivity growth.

The work of two economists decisively puts this notion to rest. Using data from the Bureau of Economic Analysis and the Bureau of Labor Statistics, Jack E. Triplett and Barry P. Bosworth of the Brookings Institution constructed measures of overall productivity for the goods- and service-producing industries. Their data, indicated by the thick lines on the chart, show that productivity in the service sector has risen considerably since 1995 and at a much faster rate than from 1970 to 1995.

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