European Union Economies Facing ‘Baumol’s Disease’ within the Service Sector

Abstract:
This article analyzes the productivity of the service sector within the countries of the European Union during the period 1994–2005. After disaggregating the sector into 11 branches, the article quantifies the relative contribution of each branch to the growth of service sector aggregate productivity.

The main conclusion is that the structure of the industry is increasingly dependent on those branches which have lower growth in labour productivity. This conclusion reveals that the EU service sector suffers from ‘Baumol's disease’, which helps to accentuate the slow productivity growth that characterizes this sector.