The Effect of Income Per Capita and Productivity Growth on Service Sector Employment Share (the Case of Iran)

The main question this paper addresses is why service sector employment share has steadily increased in Iran over the last decades? For this purpose، we test two effects including Engel and Baumol effects. The time series data are employed to estimate the specified model using the data over the period 1987-2006. The results confirm that the effect of per capita income (Engel effect) on service sector employment share is nonlinear. When the per capita income is lower، the effect is negative، while the per capita income is higher، the effect is positive. Moreover، this paper confirm that the Baumol effect in Iran.