Sectoral Re-Composition, Inflation and Productivity Growth in the OECD

Abstract

This paper examines the changing composition of OECD economies, between large sectors such as manufacturing and services. It presents several stylised facts on how these changes relate to inflation, labour productivity and real wage growth. First, manufacturing has fallen and services have risen, in terms of output shares. Second, differences between sectors can be marked. For example, inflation is lower in manufacturing than in services, and productivity and real wage growth is higher. Third, despite inter-sectoral variations, the changing structures of economies have no significant impact on productivity growth, and no apparent impact on inflation. Over our thirty year sample, structural change has slowed at the same time as productivity growth has held up. However, there is evidence of a dynamic relationship between structural change and productivity growth, and tentative signs of adjustment costs in downturns, consistent with flexible economies being quicker to recover following negative shocks.

Keywords: sectoral change, panel data, labour productivity, shift-share analysis

JEL Classification: C23, J24, O14