A significant transformation is underway in the services sector, driven by digital technologies and organizational innovations across retail, hospitality, personal services, and healthcare industries. In a 2023 study, University of Chicago economists Chang-Tai Hsieh and Esteban Rossi-Hansberg identified this shift as an “industrial revolution in services,” noting that it has enabled certain firms to drastically improve productivity and expand their reach into local markets historically served by smaller, less efficient competitors.
Measured labor productivity growth in the United States underscores this trend. Between 2000 and 2024, productivity increased annually by 3 percent in food service, 2.1 percent in accommodation services, 2.9 percent in retail trade, and 4.4 percent in wholesale trade. These figures contrast sharply with manufacturing, where labor productivity growth has essentially stagnated at 0.2 percent annually over the same period.
While some experts debate the ongoing role of industrialization in economic growth, particularly in developing countries, this service-sector revolution appears to be a global phenomenon. It has spread beyond advanced economies and is becoming a key driver of development in regions such as India, sub-Saharan Africa, and Latin America.
Contrary to the conventional focus on tradable, skill-intensive services like information technology, finance, and business processing, the current shift largely involves more accessible service domains. These include restaurants, deliveries, ride-hailing, grocery stores, gig work, and care services, which can absorb a larger share of the labor force in low-income contexts.
Critics caution that manufacturing, despite limited direct employment generation, offers indirect benefits through linkages and technological spillovers. However, the structure of contemporary global value chains—with a heavy reliance on imported intermediate and capital goods—means most export-oriented manufacturing generates limited domestic value added and minimal backward spillovers.
Supporting this perspective is recent research on Brazil’s food delivery market. Platform firm iFood, for instance, connects 400,000 restaurants of varying sizes, offering not only delivery services but also financial tools, logistical support, customer service, and market analytics. These capabilities facilitate productivity improvements across the food service sector.
Despite the evident productivity gains in labor-absorbing services, concerns remain about how benefits are distributed. Large chains and platform companies may leverage their market power, potentially limiting wage growth and labor conditions. Similar patterns were observed during the early stages of manufacturing industrialization.
To ensure broad-based sharing of productivity gains, experts emphasize the importance of competition policy, regulation, and increased worker representation. Without sufficient productivity improvements, calls for higher labor standards risk reducing employment opportunities. However, sustaining this service-sector productivity revolution could help both developed and developing nations avoid such trade-offs, fostering inclusive economic growth.