Service labor allocation during development: Longitudinal perspectives on cross-sectional patterns

International cross sectional analyses have frequently indicated that the share of a country's labor force in the service sector increases, declines and then increases again with rising per capita GNP. This pattern deviates from the theoretically justified and empirically observed time series trends in individual countries that show monotonically increasing service labor shares during the course of development. This paper suggests that the apparent paradox results from systematic changes in the longitudinal trends over time that are a result of the differences in the nature of countries entering the transition as well as the changes in the world environment. Simulation analysis is used to demonstrate how the changing longitudinal trends can generate the observed hump in cross sectional models of service labor allocation.