Data and Code for: Selection, Structural Transformation, and the Cost Disease of Services

Labor productivity growth in the service sector may be mismeasured if workers with heterogeneous skills self-select into sectors. I document with U.S. data that workers reallocated from manufacturing earn more than incumbent workers in professional services but less than incumbent workers in education, health, and public services. A generalized quantitative Roy model predicts a selection effect on labor productivity growth in professional services that is 10 percentage points higher than what a conventional selection model predicts. Overall, the selection effect contributes little to the cost disease of services, which contrasts sharply with the hypothesis in the literature.