Services and the Dynamics of Female Labor Supply

This paper provides a quantitative assessment of the theoretical explanation for the rise in the service share in the U.S. posited by Buera and Kaboski (2012a,b). By extending their single household model to a two-person household model, we incorporate a joint household decision on home and market production into the model, which provides a direct link between female labor supply and the growth of service economy. The calibrated analysis shows that both the BK model and the extended BK model are able to match nearly all of the growth in the service sector, and the channels emphasized in the BK model are quantitatively important. The rising scale of services, the rising demand for skill-intensive output stemming from rising incomes, skill-biased technical change, and rising female labor supply all play important quantitative roles.