PRODUCTIVITY GROWTH IN SERVICE INDUSTRIES: ARE THE TRANSATLANTIC DIFFERENCES MEASUREMENT-DRIVEN?

Since the mid-nineties, U.S. labor productivity outgrows its European counterpart by a wide margin. <link rid="b29">van Ark <i>et al.</i> (2003</link>) have found three service industries where productivity growth has accelerated in the U.S., but not in Europe, to account for most of the difference. These three industries are wholesale and retail trade, and trade in financial securities. However, since measurement methods differ on both sides of the Atlantic, Europe's shortfall in productivity growth could be a statistical artifact. This paper tries to answer the question whether this is indeed the case by quantifying the extent to which the U.S. growth rates in trade and banking are pulled upward by measurement methods that are unusual in Europe. In addition, some observations are offered on whether the recent upswing in productivity growth in the U.S. services sector has cured "Baumol's Cost Disease." Copyright 2008 The Author. Journal compilation 2008 International Association for Research in Income and Wealth Published.