Service-sector productivity and international competitiveness

Service-sector productivity largely determines a nation’s ability to compete in today’s global economy. An analysis of the comparative productivity levels of several leading countries provides insights into the factors that make a difference.

Weddedto outdated ideas about the importance of manufacturing, economists of all stripes have usually given short shrift to the service sector. When they did pay it attention, it was often to conjure up derisive images of unskilled, low-wage armies of “burger flippers” and supermarket clerks. This was always wrong. It is now dangerous. The conventional wisdom about services is seriously in error.

Manufacturing is, and of course, will remain, genuinely important to the economic health of industrial nations. Today, however, in terms of employment, income, international trade, and even production costs, services have become yet more important. This is the inescapable conclusion of a recent study by the McKinsey Global Institute of service-sector productivity in the United States, the United Kingdom, Japan, France, and the former West Germany.1 For background information on this report, see sidebar “Studying productivity.”

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December 2, 2014

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