Introduction

In Chapter 2 we analysed the differences in growth performance between the European Union and the USA. While many idiosyncrasies in the growth patterns can be observed, there are also common long-term trends in the structure of the economy. The purpose of this chapter is to look for similarities, rather than for differences, in the process of structural change in the two regions. This will be done by building upon the seminal work of Simon Kuznets and Angus Maddison. More than twenty-five years ago, these two economists established a number of empirical regularities in the structural transformation of advanced economies since the Second World War (Kuznets 1971; Maddison 1980). The best-known facts are the shifts of output and labour from agriculture to industry and later from industry to services. In addition, the services sector is characterised by limited scope for innovation and technical change with productivity growth rates that are much lower than in industry and agriculture. The Kuznets–Maddison stylised patterns of growth have been a crucial ingredient in much work on economic growth, development economics, international trade, business cycles and labour markets. For example, sectoral differences in productivity are an important cornerstone in models of real exchange rates (Obstfeld and Rogoff 1996). They also underpin the hypothesis of the cost disease of the services sector described by Baumol (1967) and motivate the recent surge in multi-sector endogenous growth models, e.g. Ngai and Pissarides (2007) and Restuccia et al. (2008).