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ABSTRACT
Five sectors have increased their contribution to US GDP growth since 1973: professional-business services (PBS), finance, information, healthcare, and arts-entertainment. Among these, however, finance, healthcare, and PBS have questionable foundations for being regarded as final consumption of households. Contra published National Income and Product Accounts, treating expenditures on finance, healthcare, and PBS as intermediate consumption reveals a significantly different picture of US economic growth, including i) a deeper slowdown of real output growth since 1973; ii) a more moderate rise in consumption share since 1980; and iii) a sharper decline in labor share, defined as the compensation of employees over GDP since 1985. Through a measurement approach, this paper thus contributes to the literature on secular stagnation and rising inequality in the United States.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1. The BEA-added costs for research and development as well as entertainment originals ($560 billion in 2013) increased GDP by 3.6% in July 2013 (Goodwin et al. Citation2015, 113). This adjustment had minimal impact on the growth rate in 2013 because past expenditures on intellectual property products were also added to previous years’ GDP.
2. I include social assistance under healthcare to correspond with its classification in Input-Output Tables over 1947–1962. However, this is not a universal convention, and other countries report social services separately from healthcare.
3. Costs of work-related medical tests covered by employers are reported as business expenses and subtracted from their value added. However, if employees pay for such tests, their costs are treated as final consumption of households (Assa Citation2015, 14).
4. This imputation constituted approximately one-fourth of all healthcare expenditures in 2016.
5. Instrumental expenditures are ‘necessary overhead costs of a complex industrial nation-state,’ (Nordhaus and Tobin Citation1972, 7) and they are treated as intermediate consumption.
6. Christophers (Citation2011) defines the treatment of finance by the SNA 68 as implicitly productive because intermediation services are imputed to banks’ output but subtracted from the rest of their value added either by defining a nominal sector whose only input is intermediation services (as is done in the United Kingdom) or by decreasing the value added of users of intermediation services (as done in France). The United States followed the suggestion by the SNA 53 of imputing the banking sector’s wages and profits to banks’ output. However, the ‘US case is very much an anomaly’ (Christophers Citation2011, 130).
7. Legal services can also be described under transaction costs. Coase (Citation1995) discusses the expenses that firms incur in using markets instead of internal resources for inputs of production. Fees paid to lawyers for preparing contracts fit well to this definition. Financial fees may also be included because they are the costs of firms’ decisions to use external finance instead of retained earnings. Rising legal and financial service fees, thus transaction costs, in the United States after 1980 is in line with the rent-seeking explanation of Stiglitz (Citation2012).
8. Interestingly, William Petty, who conducted the first national income estimations, treated ‘great professions’ as facilitators of the production and maintenance costs of the social order (Mazzucato Citation2018, 25).
9. When I deflate deductions by the personal consumption expenditures deflator and then subtract from real GDP, results do not change significantly. When I use each expenditure category’s price deflator, the decline is 21 basis points over 1947–1973, 14 points over 1973–2000, and 18 points after 2000. However, using sectoral price deflators are not without problems because real expenditures are not additive.
10. Under miscellaneous expenditures, BLS collects safety deposit box rentals, funerals, cemetery lots, union dues, and occupational expenses in addition to financial and PBS expenditures.
11. In the NIPAs, proprietors’ income is reported under net operating surplus, and I follow the same methodology. Instead of net operating surplus, GOS is preferred because I aim to adjust GDP by income, which includes depreciation.
12. Elsby, Hobijn, and Şahin (Citation2013) mention several problems in imputing self-employment income to labor and capital because there is no observable measure that splits returns to labor and capital. I prefer to use the CE, which is an unambiguous return to labor, as labor income because its decline has driven the change in labor share in recent decades [(Elsby, Hobijn, and Şahin Citation2013, 16).
13. Expenditure survey data were published for 1960–1961 and 1972–1973 and then annually after 1984. However, the quintile distribution of expenditures is available only after 1984.
14. I do not adjust NT, and they increase slightly owing to the denominator effect.
15. I use the GDP deflator to deflate productivity and compensations. When I use the personal consumption expenditures deflator, results do not change significantly.