Relationship between Inflation and the Comparative Evolution of Wages in Industry and Services within the Spanish Economy

A large body of empirical literature ascribes a high degree of responsibility by the service sector for the difficulties in lowering inflation in the Spanish economy in the 1980s and early 1990s. Despite the fact that most of the branches in this sector are characterised by their lower ability to increase productivity, service wages have increased at a similar rate to those of other activities that, however, have been able to generate constant growth in productivity. On the other hand, tertiary activities have been able to transmit the growth in wage costs to prices without this having significant repercussions on the amount demanded as they are more protected from international competition. In this context, the reasons why service growth is accused of being one of the key causes of price growth are understandable. Nevertheless, throughout the1990s, important changes have taken place due to the technological revolution of modern economies that have created a doubt that services are still for the most partly protected from competition. This article makes a comparative study of the evolution of wages in industry and services, finding initial evidence that tertiary wages are presenting in their evolution the lowest productivity of most of tertiary activities pressurised by greater competition, which is lowering the incidence on inflation of the sector and of the economy in general.     

Knowledge-intensive business services in transition economies

Knowledge-intensive business services accounted for a rapid growth in transition economies after 1989. The growth in value added outpaced growth in employment, which indicated increasing labour productivity in this sector. Studies based on input–output tables found that development of business services was closely related to development of communication services in advanced EU member countries. The input–output analysis did not confirm this relation for Slovakia and the Czech Republic and found a medium to strong level of correlation for Hungary. Development of a market economy was likely to be a major factor behind development of business services. This assumption was tested on empirical data. The use of communication and business services could be a proxy for introduction of new technologies in production functions. The functions indicated that these industries made a significant contribution to economic growth both in advanced and transition economies. Output elasticity coefficients were quite similar in the Czech Republic, Hungary and Slovakia and the EU member countries.     

Services policy reform and manufacturing employment: Evidence from transition economies

Policy reforms targeting the services sectors are a neglected dimension of the process of structural transformation and economic development. The effects of such reforms on employment across industries as a function of their use of services as intermediate inputs are theoretically ambiguous and remain largely understudied. This paper uses sector‐level data for 24 transition economies for the 1990–2012 period to assess the impacts of services policy reforms on downstream manufacturing employment. We find a negative effect of services reforms on manufacturing sector employment. This is mostly associated with the process of transition to a market‐based economy. Controlling for transition‐specific dynamics, the data suggest a neutral effect of progress towards adopting “best practice” policies for upstream services on employment in downstream manufacturing. Furthermore, in line with the extant literature, we confirm that services policy reforms enhance productivity of downstream manufacturing industries. Finally, we find that the negative effects on downstream employment are mitigated in countries with better economic governance and human capital.     

Impacts of intermediate trade on sector structure

Structural changes, i.e. long-run changes in the agriculture-manufacturing-services-structure, are a key property of growth and development processes with massive impacts on economy and society and are part of actual debates regarding policy in developing and developed economies. While traditional literature has attempted to explain structural changes by using autarkic models, recent literature has emphasised the importance of deriving theories of structural change using open economy settings. We elaborate on the impacts of intermediate trade on sector structure. In particular, we study how import of intermediate products, which is increasingly feasible due to improvements in transport technology and political integration, affects sector structure in a multi-sector growth model with capital accumulation. This topic has not been studied in the previous literature on structural change in open economies, despite the fact that intermediate imports and capital accumulation are central aspects of modern developing and developed economies. We show that the impacts of intermediate trade on sector structure depend on three factors: productivity gains from trade, specialisation in international trade and development stage. Depending on the constellation of these factors, intermediate trade may accelerate, decelerate or have no effect on structural change. Thus, the effects of intermediate trade may vary strongly across countries.     

中国服务业增长的地区与部门特征

本文对中国服务业增长的地区与部门特征进行了实证分析,探讨了其中的影响因素.改革开放以来,中国服务业的发展速度是很快的,但与其他经济体相比,中国目前服务业存在着明显的"三低"现象,即服务业的增加值比重偏低、就业比重偏低和人均增加值偏低.中国服务业的发展具有鲜明的地区与部门非均衡特征.在影响目前中国服务业增长的诸因素中,人均GDP水平、城市化水平是最为重要的促进变量.因此,应继续推进城市化和市场化发展战略,缩小各地区服务业发展的差距和服务业各部门发展的差距,推动服务业全面均衡发展;促进服务业内部结构的调整与优化,注重服务业的集约化发展,使服务业的增长真正建立在劳动生产率的提高和技术进步的基础之上,增强服务业的产业整合力、经济牵引力和国际竞争力.     

Barriers to ‘industrialisation’ for interwar British retailing? The case of Marks & Spencer Ltd

Research on international differences in retail productivity has highlighted formidable environmental barriers to the ‘industrialisation’ of mass retailing as a driver of declining British interwar productivity growth in this sector (and in services more generally). We examine evidence for such barriers, using a case study of a firm that built its interwar expansion strategy on ‘American’ retail methods – Marks & Spencer (M&S). We find that, rather than facing barriers to the adoption of American mass retail practices, M&S reaped major productivity gains from this process. This adds further evidence to an emerging literature rejecting the barriers to industrialisation thesis for retailing.     

Trade and Innovation in Services: Evidence from a Developing Economy

Studies on innovation and international trade have traditionally focused on manufacturing because neither was seen as important for services. Moreover, the few existing studies on services focus only on industrial countries, even though in many developing countries services are already the largest sector in the economy and an important determinant of overall productivity growth. Using a recent firm‐level innovation survey for Chile to compare the manufacturing and ‘tradable’ services sector, this paper reveals some novel patterns. First, even though services firms have on average a much lower propensity to export than manufacturing firms, services exports are less dominated by large firms and tend to be more skill intensive than manufacturing exports. Second, services firms appear to be as innovative as – and in some cases more innovative than – manufacturing firms, in terms of both inputs and outputs of ‘technological’ innovative activity, even though services innovations more often take a ‘non‐technological’ form. Third, services exporters (like manufacturing exporters) tend to be significantly more innovative than non‐exporters, with a wider gap for innovations close to the global technological frontier. These findings suggest that the growing faith in services as a source of both trade and innovative dynamism may not be misplaced.     

Productivity growth and cyclical behaviour in service industries: the Spanish case

A longstanding basis of empirical economics is that average labour productivity declines during recessions and increases during booms, and thus behaves procyclically. In the short run, in many countries output growth and productivity tend to move together and across a wide range of industries. In recent years, this observation has gained increased prominence as each proposed explanation for the observed procyclicality has important implications for modelling the business cycle and measuring the technical change. By filtering out the influence of business cycles, it is possible to isolate changes in the long run, or structural rate, of productivity growth and so assess the importance of any source for economic growth. Nevertheless, the focus of these empirical works has been the aggregate economy or manufacturing industries, and not the services sector. The novelty of this paper is the focus on the patterns within the services sector. The aim of this paper is to better understand short-run changes in productivity growth within the service sector industries, which are necessarily different from those existing within the manufacturing sector. Another goal of this research is to assess whether this observed procyclicality remains if the service sector is the scope of analysis, and whether this is homogeneous among the different activities within this miscellaneous sector or not. Empirical evidence for the Spanish economy since 1980 is presented.     

Services, growth poles and advanced economies

In the twenty-first century, nearly 70% of new jobs in the US have been in services, matching worldwide expansion of the services sector. This paper discusses the role of services in advanced economies internationally as a vehicle for ongoing growth and prosperity. The discussion will be frames through pole theory. Contributions of private, profit driven service activity is assessed. Services provide stability while contributing to the growth process, and may constitute growth poles on their own as in money markets and insurance. Services facilitate business and business change, both in domestic and international markets.     

Patterns of trade restrictiveness in online platforms: A first look

This paper develops a digital platform restrictiveness index for 64 countries based on ECIPE’s Digital Trade Estimates database and the Digital Trade Restrictiveness Index. We identify specific restrictions that affect online platforms with a focus on online search, e-commerce and social media. The results show that both OECD and non-OECD countries show high levels of trade restrictions on online platforms. Moreover, some of the most restricted countries are characterised by large markets, signifying that a substantial part of the global economy gravitates towards restricting online platforms. Based on the platform restrictiveness index, we perform an econometric analysis showing that trade restrictions for online platforms are significantly associated with lower contributions of the ICT sector to productivity growth in the entire economy. The results suggest that reducing restrictions on online platforms can increase the ICT’s contribution to overall productivity growth towards a level seen before the global financial crisis. Sectors that would benefit the most are those that make wider use of online platforms and the Internet, including information services, business services and financial services.     

50 Jahre Baumol‘sche Kostenkrankheit

The year 2017 marks the 50th anniversary of William J. Baumol’s “Cost Disease”, which posits that services with low productivity growth become more expensive relative to goods while aggregate productivity growth slows down in the process of tertiarisation. The authors present the basic structure of Baumol’s model and discuss several attempts to refute the concept or to cope with its consequences. One of them is the important observation by Nicholas Oulton that business services — unlike personal services — can contribute to higher aggregate productivity growth. A major precondition is that the productivity growth of business services is positive. However, an empirical test shows that this is not the case in Germany and other major advanced economies. Some economic policy conclusions are drawn.     

When is quality of financial system a source of comparative advantage?

Dominant theories of trade tend to ignore the role of finance as a source of comparative advantage. On the other hand, the finance literature places financial institutions as a driver of economic growth. This paper unites these two competing schools of thought in a general equilibrium framework. For economies with high-quality institutions (defined by the competitiveness of the financial sector, the quality of corporate governance, and the level of property rights protection), finance is passive. On the other hand, for economies with low-quality institutions, the quality of the financial system is an independent source of comparative advantage. Interestingly, the conventional measure of financial development (the size of the financial market relative to GDP) does not adequately capture the underlying quality of financial institutions. In addition, free trade may reduce the aggregate income in South. Financial capital tends to flow from South to North.     

信息通信技术对服务业“成本病”的影响研究——基于OECD国家生产率的增长核算分析

本文采用增长核算方法对1980-2003年部分OECD国家的服务业和制造业劳动生产率增长进行了贡献率分析。研究结果表明,信息通信技术(ICT)资本加深对服务业劳动生产率增长的贡献率远高于对制造业的贡献率,服务业劳动生产率增长落后于制造业的主要根源在于全要素生产率。ICT不能完全根治"成本病",但可以在一定程度上缓解服务业"成本病"。     

The Limits to Wage‐Led Growth in A Low‐Income Economy

Neo‐Kaleckian literature has actively debated whether growth is wage‐ or profit‐led in capitalist economies. However, existing studies tend to ignore the non‐tradable sector and heterogeneity within the tradable sector. This article shows that incorporating these features renders wage‐led growth in an open developing economy unfeasible in the traditional (Kaleckian) sense of the term. This result—which follows even if one sets aside the competitiveness considerations generally seen as impeding such growth—occurs due to the presence of a homogeneous goods‐producing tradable sector that sets the ceiling to steady‐state growth. A corollary, in light of findings from the ‘new new trade theory’ literature, is that increasing South‐South trade may tend to narrow room for wage‐led growth regardless of the other desirable effects of higher wages.     

Downsizing and productivity growth: Myth or reality?

The conventional wisdom is that the rising productivity in the U.S. manufacturing sector in the 1980s has been driven by the apparently pervasive downsizing over this period. Aggregate evidence clearly shows falling employment accompanying the rise in productivity. In this paper, we examine the microeconomic evidence using the plant level data from the Longitudinal Research Database (LRD). In contrast to the conventional wisdom, we find that plants that increased employment as well as productivity contribute almost as much to overall productivity growth in the 1980s as the plants that increased productivity at the expense of employment. Further, there are striking differences by sector (defined by industry, size, region, wages, and ownership type) in the allocation of plants in terms of whether they upsize or downsize and whether they increase or decrease productivity. Nevertheless, in spite of the striking differences across sectors defined in a variety of ways, most of the variance of productivity and employment growth is accounted for by idiosyncratic factors.     

Cost disease in service sector

A higher growth rate of the service sector prices, rather than prices in the manufacturing sector, through time is known as cost disease in the service sector. This paper investigates supply and demand-side reasons for cost disease. First, we present an analysis of the supply side of the cost disease, when services and manufacturing play their role both in the intermediate and final demand. Second, we consider a CES utility function for the consumer, which is a function of two commodity services and manufacturing. The results indicate that there are two reasons for cost disease to occur from the supply side in an economy: first, when the growth rate of total factor productivity and technological progress in services is less than that in the manufacturing sector, and second, when the elasticity of substitution between labor and manufacturing input in the services production function is large and elasticity of substitution in manufacturing production function is small. From the demand side, the result shows that the cost disease occurred if the growth rate of the income elasticity of service is more than the manufacturing sector through time.     

On Services and Growth Poles in Advanced Economies

If seven out of ten new employment opportunities in advanced economies are service-oriented it seems reasonable to expect that service activities are playing a role in the growth and continued viability of those economies. An examination of services in a growth pole context provides a better understanding of that role. In some cases they constitute growth poles in their own right. In others they facilitate the activities of growth poles. Certainly the view of services as in some way subordinate in importance to ‘stronger’ industrial sectors is an oversimplification. Today they are emerging as both causative elements and facilitators in the continuing growth of advanced economies.     

In search of leisure time: An endogenous growth model with leisure services

Starting from the Ladrón‐de Guevara et al.’s framework, we develop a model with an additional sector for the production of leisure services. By introducing consumption of leisure services as a time‐consuming activity, our model generalizes the standard time allocation problem whereby total available time can be allocated between work, education, free time and leisure activities. We analytically characterize the balanced growth paths of the model, particularly in terms of time allocation and growth. Our comparative analysis of different service economies assumed at equilibrium includes the case of an industrial economy without a service sector and the potential multiple equilibria of such an economy.     

Investment in Transition Economies

Summary

All centrally planned economies suffered from overinvestment. Due to low capital productivity, reasonable growth rates in output could be maintained only with high investment/GDP ratios. Nevertheless, the sharp reduction in investment during transformational recession and its slow growth during subsequent recovery are viewed as negative phenomena, since transition economies offer numerous opportunities to increase output with relatively small targeted investment.

This paper seeks to develop and test two major hypotheses. The first one explains the behavior of aggregate investment during transition: we find that changes in external financing (current account balance), in the government budget deficit and in the institutional capacity of the state (as measured by the share of government revenues in GDP) explain up to 75% of the variations in investment/GDP ratios during transition, while the progress in reforms (cumulative liberalisation index) and in privatisation (share of the private sector in GDP) do not matter a great deal. With respect to sources of investment financing, there is some evidence that better investment performance is supported by budgetary funds, by credits to the private sector and by the strength of the stock market, whereas foreign aid is a substitute rather than a complement (i.e., it is negatively related to investment) and the inflow of foreign direct investment is not important.

The second hypothesis deals with the impact of investment on economic performance as measured by changes in GDP during transition: we find that differences in performance arc, in great part, associated not with investment patterns, but with varying marginal capital productivity. The latter in turn is determined mainly by differing magnitudes of restructuring required in various countries, i.e., by the distortions in industrial structure and trade patterns inherited from central planning, and by the institutional capacity of the state (as measured by the share of shadow economy and government revenues in GDP). The degree of liberalisation in this case appears to be a relatively important determinant of capital productivity, while the rates of inflation are not.