Aggregate Employment and the Rise of Services across Time and Countries

We study the sectoral reallocation of employment over time and across countries, with a focus on the rise of services. We document substantial changes in the ratio of aggregate employment to working-age population across countries that are not systematically related to productivity growth or income levels, yet tightly linked to the rise in services employment. We assess the quantitative contribution of changes in aggregate employment to the rise of services using an otherwise standard model of sectoral reallocation calibrated to time-series for the United States. The calibrated model implies a high elasticity of changes in aggregate employment to services: a one percentage point change in aggregate employment generates on average a 0.7 percentage point change in services employment. The implication is that actual changes in aggregate employment account for one-third of the rise in services, on average across countries, and up to one-half in countries with sustained employment increases. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.