Does Good Service Mean Slow Growth?

The Wall Street Journal: “Economists seeking to explain slowing productivity growth have pointed to a downturn in global innovation. Overlooked in that debate is how hard it is to innovate in services, which are lapping up a growing share of consumers’ budgets as goods prices fall.”

“Growth in productivity—the goods and services a worker produces in an hour, a key determinant of wages and living standards—has petered out along with a slowdown in technological advances, which typically reduce the time spent to build a laptop or car … It has been even more stubborn, though, on the services front. People want their hairdressers and therapists—and even their accountants and lawyers—to take their time, often the definition of good service.”

“American economist William Baumol dug into this phenomenon decades ago, exploring how an expanding service sector can hobble productivity growth. He illustrated his thesis with the extreme example of the performing arts. ‘It’s fairly difficult to reduce the number of actors necessary for a performance of Henry IV,’ Mr. Baumol, now a New York University professor, wrote in his landmark 1965 article.”

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