Measuring the Effects of Demand and Supply Factors on Service Sector Productivity

Economic activities in the service sector have been increasingly important in developed countries. Despite the importance of the service sector, there are several drawbacks with a conventional way of measuring service sector productivity. This paper proposes an alternative methodology in which we can separate demand and supply factors that influence service transactions. An empirical framework is constructed based on the model of Johnson and Myatt (2003) and allows us to identify cost factors separately from demand factors. This paper also demonstrates that demand factors significantly influence the conventional measure of service sector productivity.