Structural Change within the Service Sector and the Future of Baumol's Disease

Structural change contributed to the past slowdown of US productivity growth by reallocating production to stagnant services sectors with low productivity growth. We ask what the future effect of structural change on productivity growth will be. To provide an answer, we study structural change among goods and different services. We find that there are substitutes for stagnant services, which prevents them from taking over the economy in the long run. Our calibrated model implies that in the future structural change will reduce aggregate productivity growth in the USA only by about half as much as in the past.