Industrialization, Productivity and the Shift to Services and Information

Abstract

A ll major world economies are exhibiting a shift from products to services in terms of relative share of GNP and employment. A well accepted explanation for this shift to services has been the lower productivity growth in services relative to manufacturing. A second trend visible in the United States and other advanced economies is that from material-intensive to information-intensive sectors with the latter growing relative to the former. There does not seem to be a generally accepted explanation for this shift; in fact, here it would appear that productivity in information-intensive sectors is increasing. We construct a model of an economy with endogenous production and consumption decisions by utility maximizing individuals. We show that differential productivity changes can result in either relative growth or decline of a sector. A second factor affecting the direction of change is the degree to which consumption of sector outputs approaches satiation. When marginal utility of additional consumption drops sufficiently low, productivity increases can lead to declines in the relative size and share of, and employment in the sector. Concurrently, increases in productivity increase average wealth as expected, but income inequality can either increase or decrease.We assume non-satiation of consumption utility, that is, there is at least one j, such that @U i @y ij [ 0 for all feasible y ij : Karmarkar, Kim, and Rhim: Productivity and the Shift to Services

Disruptive Innovation, Market Entry and Production Flexibility in Heterogeneous Oligopoly

“…This trend is consistent with a general shift towards servicitation (Karmarkar et al. ). High‐tech conglomerate Alphabet (Google) is leveraging on its computing power to become the leading exponent of autonomous driving (Economist 2016a).…”

Ramp Up and Ramp Down Dynamics in Digital Services

“…The rapidly changing business environment raises the question, what are the future implications of this research? Technology evolution has increased the complexity of the service context by multiplying the ways customers can interact with other customers and different service providers, leading to complex service networks (Karmarkar, Kim & Rhim, ; Patricio, Gustafsson & Fisk, ). We contend that these trends will accentuate the issues that we have identified in service ramp ups.…”

Service operations: what’s next?

“…The growth of servitization coincides with a major global economic shift, from materialintensive manufacturing activities to information-intensive services (Karmarkar et al, 2015).…”

“…The growth of servitization coincides with a major global economic shift, from materialintensive manufacturing activities to information-intensive services (Karmarkar et al, 2015). Such shifts can improve firm productivity and performance, although the benefits are contextual in nature (Eggert et al, 2014;Josephson et al, 2016;Karmarkar et al, 2015;Lay et al, 2010;Neely, 2008).…”

“…The growth of servitization coincides with a major global economic shift, from materialintensive manufacturing activities to information-intensive services (Karmarkar et al, 2015). Such shifts can improve firm productivity and performance, although the benefits are contextual in nature (Eggert et al, 2014;Josephson et al, 2016;Karmarkar et al, 2015;Lay et al, 2010;Neely, 2008). For example, servitizing firms with better financial performance have more decentralized decision-making processes, higher shares of loyal customers (Eggert et al, 2014), broader service offerings, and more customized product offerings (Lay et al, 2010).…”