Health Sector Structural Change

The US health-services sector has grown in terms of its expenditure share and relative price. Using a two-sector general equilibrium model with monopolistic competition and endogenous population, we find that relative price growth is almost entirely attributable to increasing relative sectoral markups. Demand effects from aging play only a minor role driving up prices and expenditure shares. Controlling for GE effects and rising relative markups, we estimate that health-sector TFP has grown since the 1980s at a rate greater than 1 percent annually, dampening relative price growth while leading to higher health-sector output, partially driving up aggregate expenditure shares. (JEL D43, E23, H51, I11, J14, L13)