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TL;DR
A November 9 report traces the growth of U.S. service-sector employment, which reached 86% of nonfarm payroll jobs in 2025 and 79.6% of all workers by a separate measure. It uses Baumol’s cost disease to explain why labor-intensive services can become more expensive, and cites a study in which an AI assistant raised customer-support agents’ issues resolved per hour by 15% on average. How those productivity gains will affect service jobs overall remains unclear.
A November 9 report says service-providing industries accounted for 86% of U.S. nonfarm payroll jobs in 2025, while a separate estimate put services at 79.6% of all U.S. workers. The report links the decades-long shift to an economic theory about why labor-intensive work can become more expensive, and asks whether AI will now raise productivity in parts of the service economy.
The employment figures use different measures. The 86% figure is the report’s calculation from the U.S. Bureau of Labor Statistics’ Current Employment Statistics, which counts payroll jobs outside farming and excludes self-employed workers. The 79.6% figure comes from International Labour Organization estimates and covers all workers. They should not be read as competing estimates of the same population.
The BLS-based share was already 62% in 1939, rose to 67% in 1967 and 72% in 1979, then reached 86% in 2025. The report argues that the expansion of services began well before U.S. manufacturing employment peaked in June 1979, when manufacturing employed almost 20 million people. Services include industries such as retail, transport, restaurants, health care, education, offices and government.
For evidence that AI can improve some service-work output, the report cites a study of 5,172 customer-support agents. An AI assistant increased the number of issues resolved per hour by 15% on average, according to the source material. That result concerns measured productivity in one customer-support setting; it does not establish how many jobs will be created or lost across the service sector.
Infographic 02 · Baumol's cost disease
Why the workers moved to services
Baumol's mechanism in four steps, and what it looks like in US jobs.
- 1966Baumol and Bowen: the quartetA 45-minute Schubert quartet still takes about three hours of human work
- 1967Two kinds of workWhere labour is a tool, machines cut it again and again; where labour is the product, they can’t
- WagesPay rises everywhereTeachers, nurses and musicians must earn more too, or they leave
- ResultCosts rise, people moveIf we keep buying the same mix, more and more workers end up in the slow sector
Service industries, share of US nonfarm payroll jobs
US jobs, annual average 2025 (millions)
Payroll shares exclude farm workers and the self-employed (BLS establishment survey). Health spending: national health expenditure as a share of gross domestic product.
Sources: W. J. Baumol, “Macroeconomics of Unbalanced Growth”, American Economic Review 57(3), 1967, BLS Current Employment Statistics (own calculation of shares), CMS, National Health Expenditure, Table 1.
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AI Meets Labor-Intensive Services
The report’s central question is whether AI can change the economics of work where human attention is part of the service. A string quartet still requires four musicians to play a piece written for four musicians; similarly, many services depend on time spent with a patient, student or customer. Software may assist some tasks, but the effect on output and staffing will vary by occupation.
The potential stakes are broad because services make up most U.S. employment by either measure in the report. If AI helps workers handle more cases per hour, organizations may be able to serve more people, reduce costs, or redeploy workers. The cited study establishes a productivity result in customer support, not which of those outcomes will follow. Changes in service prices, job quality and employment are therefore questions for further evidence, not conclusions from the 15% figure.
The source also cautions against treating rising service prices as the result of a single cause. It reports that U.S. hospital services rose 274% and college tuition 188% from 2000 to 2025, while car repair rose 143% and haircuts roughly doubled. The report gives a quality-adjusted television price decline of 98% over the same period. These selected price comparisons illustrate different trends; they do not, by themselves, explain every industry’s costs.
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Baumol’s Quartet and Cost Disease
Economists William Baumol and William Bowen examined performing-arts finances in their 1966 book, Performing Arts: The Economic Dilemma. The report recounts their example of a 45-minute Schubert string quartet: four musicians devote a total of three person-hours to the performance. Unlike factory production, the performance cannot be sped up indefinitely without changing what is being offered.
Baumol developed the broader argument in a 1967 paper, “Macroeconomics of Unbalanced Growth: The Anatomy of Urban Crisis.” The distinction was between work where labor is mainly an input that technology can reduce, and work where labor is closely tied to the service itself. The report stresses that these are ends of a spectrum, not absolute categories: technology can increase productivity in some service activities, while personal attention and time remain central in others.
The mechanism known as Baumol’s cost disease depends on wages rising across the economy. If workers in more productive industries earn more, employers in slower-productivity sectors may also need to raise pay to retain staff. When output per worker in those sectors does not rise at the same pace, labor costs per unit of service can increase. The theory offers one explanation for relative cost pressures; it does not establish that every price increase is caused by productivity differences.
What the AI Study Cannot Show
The source material does not provide the full study citation, its research design, the period over which agents were observed, or details about the participating organizations. Those details are needed to judge how widely the 15% average productivity result applies, and whether it holds across different support work and workplaces.
It is also not clear whether AI productivity gains will translate into lower prices, higher service volume, changed job duties, reduced staffing, or some combination. The report frames the effect on employment as an open question. The employment-share figures describe the structure of the workforce in 2025; they do not measure how AI has changed jobs since then.
The price comparisons likewise do not isolate causes. The source notes that U.S. health spending equaled 18.0% of the economy, compared with 12.4% in Germany, but does not establish from those figures alone why the countries differ. Industry rules, financing and other factors may matter alongside productivity and wages.
Evidence on Jobs and Productivity
The next step is to compare the customer-support finding with studies and workplace data from other service industries. Useful evidence would track not only issues resolved per hour, but also service quality, worker pay, hours, hiring and staffing after AI tools are introduced.
For now, the report offers a historical employment trend, an economic explanation for persistent cost pressures and one specific AI productivity result. It does not show that AI will shrink the service sector or that the 15% gain will be repeated elsewhere. The effect on jobs will depend on how employers use the tools and whether increased capacity leads to more services, fewer workers, or different work.
Key Questions
What does “80% service-based” mean?
It refers to the International Labour Organization estimate cited by the report: 79.6% of U.S. workers were in services in 2025. A separate BLS-based calculation found services made up 86% of nonfarm payroll jobs; that measure excludes farm workers and self-employed people.
Did services grow only after factory jobs declined?
No. The report’s BLS-based figures put services at 62% of nonfarm payroll jobs in 1939, before the 1979 peak in U.S. manufacturing employment. The service share continued to rise after that peak.
What is Baumol’s cost disease?
It describes how costs can rise in sectors where productivity is difficult to increase, while wages still face pressure to keep pace with more productive industries. The report uses live music as an example of work whose time requirements cannot easily be reduced without changing the service.
Does the AI study show that service jobs will disappear?
No. The cited study found a 15% average increase in issues resolved per hour among 5,172 customer-support agents using an AI assistant. That finding measures productivity in one setting; it does not establish the effect on employment across services.
Source: ThorstenMeyerAI.com
