Working Papers No. 104/07 Structural Change and the Growth Contribution of Services: How Motion Pictures Industrialized US Spectator Entertainment

This paper examines the effect of a new technology on a labour-intensive service. Comparing primal and dual TFP-growth with final-year social savings, we find that, between 1900 and 1938, motion pictures increased entertainment output (measured in spectator-hours) by at least nine percent annually, mainly through intensive growth. Falling profit margins indicate that motion pictures increased competition, while real wages rising twice the national average suggests labour captured part of the efficiency gains. Surviving live entertainment experienced some intensive growth, reached a similar capital/labour ratio but paid lower wages. These findings suggest that some services can experience similar productivity gains as manufacturing and that traditional service-activities survive the onslaught of new technologies by transforming their production structure