A new study reveals that digital and organizational innovations are driving a productivity revolution in the service sector, challenging traditional economic theories regarding growth and labor development.

Key Points

• US labor productivity in food services, retail, and wholesale grew between 2.1% and 4.4% annually from 2000 to 2024, significantly outpacing the 0.2% growth in manufacturing.
• Research indicates that consumer services, such as retail and delivery, are now primary engines of economic development in India, Sub-Saharan Africa, and Latin America.
• A November 2025 IMF report shows that the marginal product of labor in India’s service sector now exceeds that of its manufacturing sector.
• Retailers like Colombia’s D1 and Ara, along with Brazil’s iFood platform, demonstrate how modern services create local supply chain linkages and improve productivity for small businesses.
• Economists warn that without strong competition policy and worker protections, productivity gains in the service sector may be captured by large firms rather than benefiting employees.

Why it Matters

This shift suggests that services can serve as a viable, labor-absorbing alternative to traditional manufacturing-led growth models for developing nations. By sustaining these productivity gains, policymakers may be able to improve wages and working conditions without sacrificing overall employment levels.