reading on productivity - Baumol's Disease comes in

http://online.wsj.com/article/SB118695544319395395.html?mod=hps_us_editors_picks Between the mid-1970s and mid-1990s, annual productivity growth in the U.S. nonfarm business sector averaged about 1.5%. In the past decade, it has averaged about 2.6%. For a couple of years in the early 2000s it was near 4%, and Mr. Baumol's idea looked destined to join others in economics that looked good in theory but wrong in practice. Yet last week's downward revisions of U.S. productivity growth for the past three years suggest that the trend is closer to 2%, and shows that productivity growth has slowed for four straight years. At the same time, employment in traditionally less-productive sectors such as health care and leisure is growing rapidly, while employment in higher-productivity business services is growing more slowly; in manufacturing and retail trade, it is flat or shrinking. Therein may lie clues into whether the recent dip in productivity growth is a major turn or a temporary lull. That's where Baumol's disease comes in. In the 1960s, Mr. Baumol, now at New York University, and William G. Bowen, an economist who later became president of Princeton University, argued that because productivity growth in labor-intensive service industries lags behind that in manufacturing, productivity growth in service-oriented economies tends to sag. Still, the Fed economists and their co-authors estimated that from 2000 to 2004, multifactor productivity growth averaged just 0.2% a year in personal and cultural services (which include health care, social assistance, recreation and food services, among others), compared with almost 2% for finance and business, 2.6% for distribution and 5.4% for high tech. Sectors where productivity is high and average labor cost low "are those things that can be automated and mass-produced," Mr. Baumol, now in his mid-80s and still teaching, said in an interview. "And things where labor-saving is below average are things that need personal care -- these are health care, education, police protection, live stage performance... and restaurants." U.S. job growth has been concentrated in those latter sectors. More than half of the 1.6 million jobs added in the private sector in the past year have been in food services, health care and social services. Food services alone account for more than 20% of all new jobs this year, including government.