What is it about?

First, we present an analysis of the supply side of the cost disease, when services and manufacturing play their role both in the intermediate and final demand. Second, we consider a CES utility function for the consumer, which is a function of two commodity services and manufacturing.

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Why is it important?

When productivity rises cumulatively in one sector relative to its rate of growth elsewhere in the economy, while wages rise commensurately in all areas, then relative costs in the nonprogressive sectors must inevitably rise.


we identify two reasons in this study to explain cost disease, but they are not perfect explanations. Other reasons may exist for cost disease beyond the above two reasons because the conditions of production, supply and demand for services products changes through time and these events may increase or decrease the cost of disease in the future. Examples include the following: change of innovation in service, change of consumer preferences toward new services, change of increasing return to scale in service products, and an increase in the share of services in international trade.

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This page is a summary of: Cost disease in service sector, Service Industries Journal, March 2017, Taylor & Francis,
DOI: 10.1080/02642069.2017.1306056.
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