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The U.S. health-services sector has grown both 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% annually, dampening relative price growth,
while leading to higher health-sector output, partially driving up
aggregate expenditure shares.
