IDEAS home Printed from https://ideas.repec.org/a/eee/exehis/v46y2009i2p186-202.html
   My bibliography  Save this article

Engel versus Baumol: Accounting for structural change using two centuries of U.S. data

Author

Listed:
  • Dennis, Benjamin N.
  • Iscan, Talan B.

Abstract

In the last two centuries, the reallocation of labor out of agriculture has been a dominant feature of structural change and economic growth in the United States. This paper uses an accounting framework founded in economic theory to decompose this reallocation into three components: a demand-side effect due to the low income elasticity of demand for agricultural goods (Engel effect), and two supply-side effects, one due to differential sectoral productivity growth rates (Baumol effect), and the other to differential capital deepening. The results show that the Engel effect accounts for almost all labor reallocation until the 1950s, after which the Baumol effect becomes a key determinant. Our framework provides a unified account of long-run structural change, and demonstrates that historical interpretations and theoretical models that emphasize only one dimension of this process cannot properly account for the dramatic history of labor reallocation in the United States.

Suggested Citation

  • Dennis, Benjamin N. & Iscan, Talan B., 2009. "Engel versus Baumol: Accounting for structural change using two centuries of U.S. data," Explorations in Economic History, Elsevier, vol. 46(2), pages 186-202, April.
    • Handle: RePEc:eee:exehis:v:46:y:2009:i:2:p:186-202
    as

    Download full text from publisher

    File URL: https://www.sciencedirect.com/science/article/pii/S0014-4983(08)00042-9
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Marvin Towne & Wayne Rasmussen, 1960. "Farm Gross Product and Gross Investment in the Nineteenth Century," NBER Chapters, in: Trends in the American Economy in the Nineteenth Century, pages 255-316, National Bureau of Economic Research, Inc.
    2. Piyabha Kongsamut & Sergio Rebelo & Danyang Xie, 2001. "Beyond Balanced Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(4), pages 869-882.
    3. Gordon,Robert J., 2004. "Productivity Growth, Inflation, and Unemployment," Cambridge Books, Cambridge University Press, number 9780521531429, October.
    4. Putnam, Judy & Allshouse, Jane & Kantor, Linda Scott, 2002. "U.S. Per Capita Food Supply Trends: More Calories, Refined Carbohydrates, and Fats," Food Review/ National Food Review, United States Department of Agriculture, Economic Research Service, vol. 25(3), pages 1-14.
    5. John W. Kendrick, 1961. "Productivity Trends in the United States," NBER Books, National Bureau of Economic Research, Inc, number kend61-1.
    6. L. Rachel Ngai & Christopher A. Pissarides, 2007. "Structural Change in a Multisector Model of Growth," American Economic Review, American Economic Association, vol. 97(1), pages 429-443, March.
    7. Daron Acemoglu & Veronica Guerrieri, 2008. "Capital Deepening and Nonbalanced Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 116(3), pages 467-498, June.
    8. Kenneth L. Sokoloff, 1986. "Productivity Growth in Manufacturing during Early Industrialization: Evidence from the American Northeast, 1820-1860," NBER Chapters, in: Long-Term Factors in American Economic Growth, pages 679-736, National Bureau of Economic Research, Inc.
    9. Fogel,Robert William, 2004. "The Escape from Hunger and Premature Death, 1700–2100," Cambridge Books, Cambridge University Press, number 9780521004886, October.
    10. Victor R. Fuchs, 1968. "The Service Economy," NBER Books, National Bureau of Economic Research, Inc, number fuch68-1.
    11. Echevarria, Cristina, 1997. "Changes in Sectoral Composition Associated with Economic Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(2), pages 431-452, May.
    12. D. Gale Johnson, 2002. "Comment on "The U.S. Structural Transformation and Regional Convergence: A Reinterpretation"," Journal of Political Economy, University of Chicago Press, vol. 110(6), pages 1414-1418, December.
    13. Jeremy Atack & Fred Bateman & Robert A. Margo, 2005. "Capital deepening and the rise of the factory: the American experience during the nineteenth century," Economic History Review, Economic History Society, vol. 58(3), pages 586-595, August.
    14. Mr. Sergio Rebelo & Ms. Piyabha Kongsamut & Danyang Xie, 2001. "Beyond Balanced Growth," IMF Working Papers 2001/085, International Monetary Fund.
    15. Perez, Stephen J & Siegler, Mark V, 2003. "Inflationary Expectations and the Fisher Effect prior to World War I," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(6), pages 947-965, December.
    16. Young, Andrew T., 2010. "One of the things we know that ain't so: Is US labor's share relatively stable?," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 90-102, March.
    17. Robert E. Gallman, 1986. "The United States Capital Stock in the Nineteenth Century," NBER Chapters, in: Long-Term Factors in American Economic Growth, pages 165-214, National Bureau of Economic Research, Inc.
    18. Piyabha Kongsamut & Sergio Rebelo & Danyang Xie, 2001. "Beyond Balanced Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(4), pages 869-882.
    19. Francesco Caselli & Wilbur John Coleman II, 2001. "The U.S. Structural Transformation and Regional Convergence: A Reinterpretation," Journal of Political Economy, University of Chicago Press, vol. 109(3), pages 584-616, June.
    20. Dennis, Benjamin N. & Iscan, Talan B., 2007. "Productivity growth and agricultural out-migration in the United States," Structural Change and Economic Dynamics, Elsevier, vol. 18(1), pages 52-74, March.
    21. Robert E. Gallman & Thomas J. Weiss, 1969. "The Service Industries in the Nineteenth Century," NBER Chapters, in: Production and Productivity in the Service Industries, pages 287-381, National Bureau of Economic Research, Inc.
    22. Robert E. Gallman & John Joseph Wallis, 1992. "American Economic Growth and Standards of Living before the Civil War," NBER Books, National Bureau of Economic Research, Inc, number gall92-1.
    23. Gordon,Robert J., 2004. "Productivity Growth, Inflation, and Unemployment," Cambridge Books, Cambridge University Press, number 9780521800082, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Benjamin N. Dennis & Talan B. Işcan, 2007. "Accounting for Structural Change: Evidence from Two Centuries of U.S. Data," Working Papers daleconwp2007-04, Dalhousie University, Department of Economics.
    2. Talan B. Işcan, 2009. "Engel and Baumol: How much can they explain the rise of service employment in the United States?," Working Papers daleconwp2009-03, Dalhousie University, Department of Economics.
    3. Iscan Talan, 2010. "How Much Can Engel's Law and Baumol's Disease Explain the Rise of Service Employment in the United States?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-43, September.
    4. Fedderke, Johannes W., 2018. "Exploring unbalanced growth: Understanding the sectoral structure of the South African economy," Economic Modelling, Elsevier, vol. 72(C), pages 177-189.
    5. Teignier, Marc, 2018. "The role of trade in structural transformation," Journal of Development Economics, Elsevier, vol. 130(C), pages 45-65.
    6. Herrendorf, Berthold & Rogerson, Richard & Valentinyi, Ákos, 2014. "Growth and Structural Transformation," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 6, pages 855-941, Elsevier.
    7. Alonso-Carrera, Jaime & Raurich, Xavier, 2015. "Demand-based structural change and balanced economic growth," Journal of Macroeconomics, Elsevier, vol. 46(C), pages 359-374.
    8. L. Rachel Ngai & Barbara Petrongolo, 2017. "Gender Gaps and the Rise of the Service Economy," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(4), pages 1-44, October.
    9. Gangopadhyay, Kausik & Mondal, Debasis, 2021. "Productivity, relative sectoral prices, and total factor productivity: Theory and evidence," Economic Modelling, Elsevier, vol. 100(C).
    10. Jonathan Temple & Ludger Wößmann, 2006. "Dualism and cross-country growth regressions," Journal of Economic Growth, Springer, vol. 11(3), pages 187-228, September.
    11. Cao, Kang Hua & Birchenall, Javier A., 2013. "Agricultural productivity, structural change, and economic growth in post-reform China," Journal of Development Economics, Elsevier, vol. 104(C), pages 165-180.
    12. Hartwig, Jochen, 2012. "Testing the growth effects of structural change," Structural Change and Economic Dynamics, Elsevier, vol. 23(1), pages 11-24.
    13. Chen, Chaoran, 2020. "Technology adoption, capital deepening, and international productivity differences," Journal of Development Economics, Elsevier, vol. 143(C).
    14. Berlingieri, Giuseppe, 2013. "Outsourcing and the rise in services," LSE Research Online Documents on Economics 51532, London School of Economics and Political Science, LSE Library.
    15. Ziyao Huang & Fang Yang, 2024. "Macroeconomic Impacts of College Expansion on Structural Transformation and Energy Economy in China: A Heterogeneous Agent General Equilibrium Approach," Mathematics, MDPI, vol. 12(15), pages 1-31, July.
    16. Yang, Dennis Tao & Zhu, Xiaodong, 2013. "Modernization of agriculture and long-term growth," Journal of Monetary Economics, Elsevier, vol. 60(3), pages 367-382.
    17. Alonso-Carrera, Jaime & Raurich, Xavier, 2018. "Labor mobility, structural change and economic growth," Journal of Macroeconomics, Elsevier, vol. 56(C), pages 292-310.
    18. Foellmi, Reto & Zweimüller, Josef, 2008. "Structural change, Engel's consumption cycles and Kaldor's facts of economic growth," Journal of Monetary Economics, Elsevier, vol. 55(7), pages 1317-1328, October.
    19. Dolores Guilló, María & Papageorgiou, Chris & Perez-Sebastian, Fidel, 2011. "A unified theory of structural change," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1393-1404, September.
    20. Porzio, Tommaso & Santangelo, Gabriella, 2017. "Human Capital and Structural Change," University of California at San Diego, Economics Working Paper Series qt1ws4x2fg, Department of Economics, UC San Diego.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:exehis:v:46:y:2009:i:2:p:186-202. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.elsevier.com/locate/inca/622830 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.