Editing Balassa–Samuelson effect (section)

=== Services are a 'superior good' ===
[[Rudi Dornbusch]] (1998) and others say that income rises can change the ratio of demand for goods and services (tradable and non-tradable sectors). This is because services tend to be [[superior goods]], which are consumed proportionately more heavily at higher incomes.

A shift in preferences at the [[microeconomics|microeconomic]] level, caused by an [[income effect]] can change the make-up of the consumer [[price index]] to include proportionately more expenditure on [[Service (economics)|services]]. This alone may shift the [[consumer price index]], and might make the non-traded sector look relatively less productive than it had been when demand was lower; if service quality (rather than quantity) follows diminishing returns to labour input, a general demand for a higher service quality automatically produces a reduction in per-capita productivity.

A typical labour market pattern is that high-[[Gross domestic product|GDP]] countries have a higher ratio of service-sector to traded-goods-sector employment than low-GDP countries. If the traded/non-traded consumption ratio is also correlated with the price level, the [[Penn effect]] would still be observed with labour productivity rising equally fast (in identical technologies) between countries.