Abstract: We investigate the role of sectoral differences in labor productivity
in explaining the process of structural transformation - the secular
reallocation of labor across sectors - and the time path of aggregate
productivity across countries. Using a simple model of the structural
transformation that is calibrated to the growth experience of the United
States, we measure sectoral labor productivity differences across countries.
Productivity differences between rich and poor countries are large in
agriculture and services and smaller in manufacturing. Moreover, over time,
productivity gaps have been substantially reduced in agriculture and industry
but not nearly as much in services. In the model, these sectoral productivity
patterns generate implications that are broadly consistent with the
cross-country evidence on the structural transformation, aggregate productivity
paths, and relative prices. We show that productivity catch-up in industry
explains about 50 percent of the gains in aggregate productivity across
countries, while low relative productivity in services and the lack of catch-up
explains all the experiences of slowdown, stagnation, and decline observed
across countries.
Keywords: labor productivity, structural transformation, sectoral productivity, employment, hours, cross-country data
JEL Classification: O1;O4