[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

Service
8%
Trade
10%
Agriculture
3%
Agriculture
2%
Figure 27.5
Other
21%
Other
28%
Other
20%
Manufacturing
22%
Service
42%
A
1900
B
1940
Service
32%
C
2000
SECTORAL SHIFTS
Agriculture
39%
Manufacturing
15%
Trade
22%
Manufacturing
13%
Trade
23%
Employment in the U.S. economy shifted
from agriculture to manufacturing in the
first half of the twentieth century, and
from manufacturing to services in the
second half.
SOURCES: Historical Statistics of the United
States (1975), Economic Report of the President
(2004).
THE QUALITY OF THE LABOR FORCE
As important as saving and investment rates are in explaining the growth rate of
labor productivity, capital deepening is not the whole story. Even more important today
is a second major source of productivity growth: a higher-quality labor force. Running
a modern industrial economy requires a well-educated workforce. In addition, an
economy on the cutting edge of technological change needs trained scientists and
engineers to discover and shape innovations.
Spending money on education and training improves workers’ skills and productivity.
These expenditures are investments—just like investments in machines
and buildings. And just as expenditures on plant and equipment result in physical
capital, we say that expenditures on education and training result in human capital.
Human capital is the stock of accumulated skills and experience that makes
workers productive. Increases in human capital increase the amount of output that
workers can produce and thus shift the aggregate production function up, just as
increases in physical capital do.
The United States has a highly educated workforce. Even as the number of educated
workers has increased, the returns to investing in education have grown. In
2000, the median full-time worker with at least a bachelor’s degree earned about
90 percent more per week than one with only a high school diploma—up from 36
percent in 1979. Though some of this difference may be attributed to the likelihood
that those who graduated from college are more able (and hence would have earned
high incomes whether or not they had attended college), the returns to education
appear significant even after factors such as family background and high school
performance are taken into account. Just a year of college has been estimated to
increase earnings by a minimum of 5 to 10 percent.
THE REALLOCATION OF RESOURCES FROM
LOW- TO HIGH-PRODUCTIVITY SECTORS
During the past century, the United States has evolved from an agricultural economy
to an industrial economy to a service economy. Figure 27.5 shows this dramatic
structural change. The service sector, broadly defined, includes not only traditional
services such as those provided by barbers and waiters but also the more sophisticated
services provided by doctors and lawyers, educators, and computer programmers,
among others. The medical sector alone has grown to the point that it accounted
for about 15 percent of GDP in 2000.
The movement out of agriculture and into industry explains some of the productivity
increase in the early part of the twentieth century. Though the level of
productivity in agriculture was increasing rapidly, it remained lower than that in
industry. Thus, as workers shifted out of low-productivity jobs in agriculture into
high-productivity jobs in manufacturing, average productivity in the economy
increased. With almost all labor now out of agriculture—and with agricultural
productivity increased to the point that incomes in that sector are comparable to
those in the rest of the economy—this kind of shift can no longer be a source of
overall productivity growth. But other opportunities remain. Productivity in the
592 ∂ CHAPTER 27 GROWTH AND PRODUCTIVITY