Erwan Quintin

English

Research Papers in Economics

INSIDE:
Mexico’s Export Woes 
Not All China-Induced
Issue 6 November/December 2004
An increase in the number of Americans with-
out health insurance has become an important
concern for policymakers. An analysis of the Cen-
sus Bureau’s Current Population Surveys reveals
that the number of people in the United States
without health insurance at some point during the
year has grown from about 31 million in 1987 to
nearly 45 million in 2003. The uninsured increased
from 14 percent of the total nonelderly U.S. popu-
lation in 1987 to 18 percent in 2003. 
Texas has an even larger proportion of indi-
viduals lacking health insurance. The percentage
of uninsured in Texas has been consistently about
10 points above the national average (Chart 1). 
In 2003, 27 percent of the Texas population was
uninsured. 
Health Insurance Issues
The large and growing number of uninsured
raises issues for society on at least three levels. It
starts with the burden on the uninsured and their
families, but it also affects the larger society and
influences the labor market.
Since the end of World War II, American productivity has risen steadily,
with manufacturing leading the way. The service sector has recorded slower
productivity growth, restraining the economy’s overall performance.
The productivity gap between manufacturing and services has been so per-
sistent that it has acquired a nickname—“Baumol’s disease.” In the 1960s,
New York University economist William Baumol noted that services were in-
herently labor-intensive, often delivered via one-on-one contact with customers.
By their very nature, services resisted efforts to squeeze more output from
each hour’s work. 
That may be changing. Services have been performing better in the current
business cycle, nearly catching up with manufacturing. Not that U.S. factories’
productivity gains are slacking off; they’re as strong as ever. Services pro-
Who Doesn’t Have Health
Insurance and Why
Productivity Gains Showing Up in Services
FEDERAL RESERVE BANK OF DALLAS
Southwest Economy
(Continued on page 2)
(Continued on page 5)
. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
                                 FEDERAL RESERVE BANK OF DALLAS   SOUTHWEST ECONOMY   NOVEMBER/DECEMBER 2004 5
viders are simply doing a better job of
finding ways to save time, reduce inputs
and cut costs. For the most part, they’re
doing it by sharpening and deepening
their use of Information Age technolo-
gies—scanners, computers, lasers, the
Internet and wireless communications,
among others. Another contributor has
been efficiency gains from outsourcing,
both within the United States and abroad.
What’s happening to both manufac-
turing and services productivity bears
watching, especially in the United States
and other countries that increasingly rely
on services for employment and growth.
Higher living standards come largely
from gains in output per hour. Over the
past two generations, for example, work-
ers’ total real compensation—that is,
wages and benefits, adjusted for inflation
—closely tracked productivity (Chart 1).
The implication of sluggish services
productivity was ominous: Growth in
post-industrial nations would slow as
well-paying, highly productive manufac-
turing jobs gave way to relatively less
productive, low-wage service jobs. 
Signs of stronger productivity growth
in services break through that gloomy
outlook. If sustained, they should help
ease concerns about the U.S. economy’s
ability to keep delivering higher living
standards over the long run.
Signals from Productivity Data
Unfortunately, the government’s
widely reported quarterly productivity
statistics provide direct measures for
manufacturing but not for services. One
solution to this data problem lies in
deriving an implicit gauge of services
productivity by comparing the quarterly
data for manufacturing with that for a
broad slice of the economy. We’ve cho-
sen nonfinancial corporations. The sec-
tor includes manufacturing, mining, con-
struction and other goods-producing
industries, as well as the services pro-
viders that have been productivity lag-
gards. It excludes the financial industry,
which studies indicate surged in produc-
tivity in the past two decades.
1
The presence of manufacturing in the
larger, services-heavy category provides
an indirect look at relative productivity
performance. If the industrial sector has
been a strong spot for productivity, man-
ufacturing should show higher gains
than a sector with a large services com-
ponent. If services are catching up with
manufacturing, the gap between the two
sectors should close.
This is precisely what the data show.
Manufacturing ran ahead of nonfinancial
corporations in growth in output per
hour for the past 15 years, suggesting
that factories have indeed been the lead-
ing source of U.S. productivity gains
(Chart 2).
2 The most recent productivity
readings show the gap between manu-
facturing and nonfinancial corporations
Productivity Gains Showing Up in Services
(Continued from front page)
Real Compensation Matches Productivity over the Long Run
Index, 1992 = 100
Chart 1
NOTE: Shading indicates recessions.
SOURCE: Bureau of Labor Statistics.
0
20
40
60
80
100
120
140
160
’04 ￿ ’02 ￿ ’00 ￿ ’98 ￿ ’96 ￿ ’94 ￿ ’92 ￿ ’90 ￿ ’88 ￿ ’86 ￿ ’84 ￿ ’82 ￿ ’80 ￿ ’78 ￿ ’76 ￿ ’74 ￿ ’72 ￿ ’70 ￿ ’68 ￿ ’66 ￿ ’64 ￿ ’62 ￿ ’60 ￿ ’58
Real compensation
Productivity
Manufacturing Led Productivity Gains Until Recently
Percent*
Chart 2
*Annualized rate over the prior two years.
NOTE: Shading indicates recessions.
SOURCE: Bureau of Labor Statistics.
–4
–2
0
2
4
6
8
’04 ’03 ’02 ’01 ’00 ’99 ’98 ’97 ’96 ’95 ’94 ’93 ’92 ’91 ’90 ’89 ’88
Manufacturing
Nonfinancial￿
corporations￿
(services)FEDERAL RESERVE BANK OF DALLAS   SOUTHWEST ECONOMY   NOVEMBER/DECEMBER 2004 6
closing substantially in the current busi-
ness cycle, one characterized by strong
productivity growth (Chart 3). Produc-
tivity in nonfinancial services rose at an
annualized 4.8 percent in the 10 quarters
after the 2001 recession hit bottom that
fall, not far below manufacturing’s 5.6
percent. In business cycles dating back
to 1970, the factory sector’s advantage
was usually wider, with the largest gap
occurring in the previous upturn of the
early 1990s. Manufacturing gained 3.7
percent in the first 10 quarters of that
recovery, more than doubling the 1.5
percent pace for nonfinancial corpora-
tions.
From Airports to Architecture
Recent productivity gains in services
have not been confined to a few indus-
tries.
3 Table 1 provides a sampling of the
productivity-enhancing tools service
industries are using. Airlines, for exam-
ple, have installed thousands of airport
kiosks that allow passengers to handle
routine check-ins, speeding up the
process and reducing the need for ticket-
counter agents.
4 Retailers are finding self-
service checkout stations are as much as
40 percent cheaper than clerks. In finan-
cial services, more than 100 million cus-
tomers now use online banking. As the
Internet expands to move more data
faster, such jobs as computer program-
ming and data processing are being
done for less money abroad than in the
United States. 
Professionals are adopting the tech-
nologies, too. Increasingly powerful
computers allow architects to design
new buildings in cyberspace. In Holly-
wood, digital video gear generates spec-
tacular movie sequences at lower costs.
Airlines use virtual reality in simulators
that train pilots more efficiently. The
emerging field of telemedicine allows
doctors, dentists and nurses to deliver
their services from miles away. 
The latest productivity tools in ser-
vices attest to technologies’ important
role in facilitating the processing, storing
and sending of information. These inno-
vations explain why the surge in service-
sector productivity has shown up in the
current recovery and not before. The
technologies allow companies to better
manage information, a staple of the ser-
vice sector. By contrast, Industrial Age
technologies often offered power, preci-
sion and speed in the physical realm,
making them more suitable for manufac-
turing than services. 
By their nature, Information Age
technologies offer network economies—
that is, they make services more efficient
by connecting people, improving com-
munications and providing information
that facilitates day-to-day management.
Networks give big companies an edge
because the technologies are expensive
and only pay off with size. A Federal
Reserve study found that nonfinancial
multinational corporations in the service
sector saw annual productivity gains of
4.5 percent from 1995 to 2000, up from
0.6 percent the previous five years.
5
U.S. companies have only begun to
exploit productivity-enhancing technolo-
gies, suggesting the surge in services
productivity will continue. Retail sales at
self-checkout stations, for example, will
rise from $70 billion this year to $330 bil-
lion in 2007, according to IHL Consult-
ing Group. Retailers and warehouses will
become more efficient with the spread
of radio-frequency identification tags, sil-
icon chips embedded in packaging that
can store information on products’ ori-
gin, location, expiration date and cost.
Wal-Mart Stores Inc., the nation’s largest
retailer, will require RFID tags on mer-
chandise from all its suppliers by the end
of 2006.
Wholesale trade was an early adopter
of the new management and delivery
tools, and its productivity gains actually
outpaced the manufacturing benchmark
in 1987–97. Retailers lagged manufactur-
Productivity and Recoveries
Percent
Chart 3
0
1
2
3
4
5
6
Current expansion￿
(first 10 quarters)
Previous expansion￿
(first 10 quarters)
Nonfinancial corporations￿
(services)
Manufacturing
3.7
1.5
5.6
4.8
SOURCE: Bureau of Labor Statistics. Recent productivity
gains in services
have not been
confined to a few
industries.FEDERAL RESERVE BANK OF DALLAS   SOUTHWEST ECONOMY   NOVEMBER/DECEMBER 2004 7
A closer look at
retailing confirms
the link between
technology and
productivity.
ers and wholesalers in increasing output
per hour well into the decade, but they
started to catch up as investments in new
technologies began to pay off. From 1997
to 2003, a time of stronger productivity
growth, retailers have more or less kept
pace with manufacturing and wholesal-
ing (Chart 4).
A closer look at retailing confirms
the link between technology and pro-
ductivity. The biggest gains in output per
hour have been registered by nonstore
retailers, a category that includes the
online merchants that have proliferated
with the expansion of the Internet
(Chart  5). E-commerce now accounts
for $70 billion in U.S. sales, led by Ama-
zon.com at $5.3 billion. Other top Inter-
net marketers include computer maker
Dell Inc. and Office Depot Inc. These
companies are becoming masters at
using the web to personalize customers’
shopping experiences, advertising re-
lated merchandise and tracking orders
by e-mail. Productivity has also grown
smartly among general merchandisers, a
category that includes old-line depart-
ment stores, as well as Wal-Mart and its
discount store rivals. The productivity
laggards in retail trade have been food
Services Productivity in Action
Tools How or where used Industry sectors
ATM 383,000 U.S. locations Banking, retail trade
Point-of-sale terminal Gas stations Retail trade
E-mail Send information All sectors
Cell phone Communication All sectors
Self-checkout Grocery stores Retail trade
Ticket kiosk Airports Transportation
Toll tag reader Highways Transportation
Ordering terminal Fast food restaurants Retail trade
RFID tag Inventory, shipping Transportation, trade
Voice recognition technology Telephone communication Communications, finance, travel
Shape recognition technology Iris, face recognition Banking, travel, gaming
Menu-driven software Information management Financial services
Online bill paying Bookkeeping Finance
Gene sequencer Laboratories Health care
Digital camera  Photography, movies Communications
GPS device Taxis Transportation
Bar code scanner Scan groceries Retail, transportation
Laser LASIK, CD players Health care, entertainment
Virtual reality Endoscopy, pilot training Health care, transportation
Flat-panel display Malls, cabs, airports Advertising
Design and drafting software Design cars, offices Architectural and engineering services
Search engine Internet searches All sectors
DRAM chips, storage devices Digital music players, jump drives Professional and business services
Computer-generated imaging Movies Entertainment
Internet Everywhere Retail trade, finance, etc.
Online trading Investment houses Finance
Online reservations Hotels, airlines, rental cars Transportation
Online ticketing Movie theaters Entertainment
Table 1
Retail Trade Catching Up 
with Manufacturing in
Productivity Growth
Average annual growth rate (percent)
Chart 4
0
1
2
3
4
5
1997–2003 1987–97
Retail trade
Wholesale trade
Manufacturing
SOURCE: Bureau of Labor Statistics.FEDERAL RESERVE BANK OF DALLAS   SOUTHWEST ECONOMY   NOVEMBER/DECEMBER 2004 8
stores and food services, which haven’t
been as aggressive in adopting informa-
tion technologies. 
Breaking down the general mer-
chandise category further illustrates how
technology has become the dividing line
in services productivity (Chart 6). De-
partment stores have achieved little
growth in output per hour since 1997.
These are yesterday’s retailers, doing
business much as they had in the past.
The highfliers are the discount chains,
led, of course, by Wal-Mart. These com-
panies are using information technology
to streamline inventory, delivery and
ordering—in effect, making supply-
chain management and other wholesale
trade practices into business assets.
Service Improvements Add Up
For decades, economists worried
that the productivity gap between manu-
facturing and services might undermine
growth in American living standards.
Fortunately, the threat has faded as
greater efficiency in a host of services
industries has added up to big overall
gains. Services productivity is improving
because technology has lessened the
grip of Baumol’s disease. The best ser-
vices companies are learning to use
information technology more effectively
to increase output per hour.
Services are now roughly keeping
pace with manufacturing in productivity
growth. Across-the-board increases in
productivity—with manufacturing and
services both strong—should pay off in
faster growth, greater convenience and
higher incomes for Americans. Surging
services productivity, moreover, should
help quell fears that the United States
will fail to keep up with other countries
as it loses manufacturing jobs. Greater
productivity in manufacturing and ser-
vices will help us stay ahead of the
curve.
— W. Michael Cox
John V. Duca
Richard Alm
Cox is senior vice president and chief
economist, Duca a vice president and senior
economist, and Alm an economics writer in
the Research Department of the Federal
Reserve Bank of Dallas. 
Notes
1 According to the Bureau of Labor Statistics, the data on financial cor-
porations cover 52 percent of GDP. A broader measure, for nonfarm
businesses, covers 76 percent of the economy, including financial ser-
vices, but it includes mom-and-pop enterprises, for which data on
hours worked and output are far less reliable than they are for the cor-
porate sector.
2 Consistent data extend back only to 1988, the first year for which
NAICS-coded productivity statistics are available. Before the switch to
NAICS, the Bureau of Labor Statistics used the Standard Industrial
Classification system. These earlier data show manufacturing running
ahead of nonfinancial corporations since the mid-1960s. The gap grew
more pronounced under the NAICS data. 
3 “Productivity Measurement Issues in Services Industries: ‘Baumol’s
Disease’ Has Been Cured,” by Jack E. Triplett and Barry P. Bosworth,
Federal Reserve Bank of New York Economic Policy Review, Septem-
ber 2003, pp. 23–33. The study found that productivity accelerated
after 1995 in 15 of 22 service industries.
4 Forrester Research Inc. found that self-service check-ins cost airlines
16 cents a passenger, compared with $3.68 for agents. 
5 “The Contribution of MNCs to U.S. Productivity Growth, 1977–2000,”
by Carol Corrado, Paul Lengermann and Larry Slifman, Federal
Reserve Board of Governors, manuscript, February 2004.
Discount Chains Drive Productivity Surge Among General Merchandisers
Index, 1997 = 100
Chart 6
NOTE: Other general merchandise stores is a category under the North American Industry Classification System (NAICS 4529). It includes
discount chains, warehouse clubs and superstores. It excludes department stores, which fall in the general merchandise stores category
(NAICS 452).
SOURCE: Bureau of Labor Statistics.
80
100
120
140
160
180
200
Department stores
Retail trade
General merchandise stores
Other general merchandise stores
2003 2002 2001 2000 1999 1998 1997
Nonstore Retailers and General Merchandisers Lead Growth 
in Retail Trade Productivity
Index, 1997 = 100
Chart 5
NOTE: Nonstore retailers include electronic shopping and mail-order houses, vending machine operators and direct-sales establishments, 
which include fuel dealers.
SOURCE: Bureau of Labor Statistics.
80
100
120
140
160
180
200
220
2003 2002 2001 2000 1999 1998 1997
Food services
Food stores Retail trade
All general merchandise stores
Nonstore retailers

Mexico's export woes not all China-induced

http://www.dallasfed.org/assets/documents/research/swe/2004/swe0406b.pdf

Mexico's export woes not all China-induced

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Research Papers in Economics