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TL;DR
A Nov. 9, 2026, report says services accounted for 79.6% of U.S. employment in 2025, while service industries made up 86% of nonfarm payroll jobs. It connects that long-running shift to Baumol’s cost disease and cites a study in which an AI assistant raised customer-support agents’ issues resolved per hour by 15% on average; whether that changes service-sector employment remains unsettled.
A report published November 9, 2026, says services accounted for 79.6% of U.S. workers in 2025, while service-providing industries represented 86% of nonfarm payroll jobs. The article links that long-running shift to differences in productivity between factory-style work and work requiring direct human labor, and asks whether AI productivity gains in customer support will reduce demand for service workers or redirect their work.
The report, published by ThorstenMeyerAI.com as the seventh episode in its “Work After Work” series, draws on U.S. Bureau of Labor Statistics payroll data and International Labour Organization employment estimates. Its BLS-based calculation puts the service share of nonfarm payroll jobs at 62% in 1939, 67% in 1967, 72% in 1979 and 86% in 2025. The calculation uses annual averages and excludes farm workers and self-employed people. The separate ILO estimate includes all workers and puts services at 79.6% of U.S. employment in 2025.
The report uses economist William Baumol’s cost-disease theory to explain why some services can grow more expensive even as productivity improves elsewhere. A factory may produce more with fewer labor hours as machinery and processes improve. A live quartet, by contrast, still requires four musicians to perform a piece. The report says wages tend to rise across the economy, including in work where output per labor hour is harder to increase.
On prices, the article reports that between 2000 and 2025 the official, quality-adjusted U.S. price of a television fell 98%, while hospital-service prices rose 274%, college tuition 188% and car repair 143%. It argues that the pattern cannot be explained by health insurance or student loans alone: haircuts and car repairs also rose. The figures are presented as examples of differing price trends, not proof that every price increase has the same cause.
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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Why Service Costs Keep Rising
The report matters because services already make up most U.S. employment, and their costs affect household budgets, employers and public spending. The distinction between work that can be made more productive through machinery and work that depends on time and personal attention helps explain why efficiency gains in one part of the economy do not automatically lower costs in another.
The article reports that the United States spent 18.0% of its economy on health, compared with 12.4% in Germany. That comparison shows that productivity pressures alone do not explain national spending differences. Institutions, prices and policy can shape the final bill too. For workers, the central issue is whether new tools change the amount of labor needed, the tasks workers perform, or both.
AI makes the question more immediate because it is being applied to service tasks rather than only to manufacturing. The report cites a study of 5,172 customer-support agents in which an AI assistant increased issues resolved per hour by 15% on average. That result indicates higher measured productivity in that setting; it does not establish that jobs were eliminated or that the same gain will occur in other occupations.
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Services Grew Before Factory Decline
The report challenges the idea that services expanded only after U.S. factories began shrinking. Its BLS payroll series shows services already represented 62% of nonfarm payroll jobs in 1939. The share continued rising before manufacturing employment reached its reported peak of almost 20 million jobs in June 1979, and increased further afterward. The measures cover different populations: the payroll series excludes farm workers and the self-employed, while the ILO figure cited for 2025 counts all workers.
The framework behind the article dates to William Baumol and William Bowen’s 1966 book, “Performing Arts: The Economic Dilemma,” which examined the finances of theatre, opera, music and dance. In a 1967 paper, Baumol developed the idea into a broader account of economic growth. In his example, a performance of a 45-minute Schubert quartet still requires three musician-hours; productivity advances do not necessarily shorten the performance without changing what audiences receive.
Baumol described the divide as a matter of degree, not a strict split. Retail, for example, has changed through supermarkets and self-service, while technology can make some tasks more efficient. The theory’s central point is that services involving personal attention, teaching or live performance can be harder to scale without changing their quality or nature.
““When someone purchases an air conditioner he neither knows nor cares how much labor went into it.””
— William Baumol, as quoted in the report from his 1967 paper
AI’s Job Effects Remain Open
The report frames the employment effect of AI as an open question. It does not provide details about the study’s date, research design, participating organizations, or how the 15% average varied among agents. It also does not report whether the productivity gain changed staffing, wages, service quality or the number of customer issues handled overall.
The employment shares and price changes are historical measures, but they do not by themselves establish that Baumol’s theory caused each trend. The figures also use different definitions: BLS payroll jobs exclude self-employed workers and farm employment, while the ILO estimate covers all workers. The report does not give a forecast for service-sector employment or a timeline for AI’s wider effects.
Watch for Evidence Beyond Support
The article identifies no scheduled release or policy decision as a next milestone. The next evidence readers would need is follow-up research on whether AI-supported service work changes staffing, pay, workload or service quality over time. Comparable results across occupations would also help show whether the reported customer-support productivity gain applies beyond that setting.
For the broader employment picture, later BLS and ILO data can show whether the service share continues to rise, but those totals alone will not explain what happened to particular jobs. The report’s central question—whether AI reduces the need for workers or shifts them into remaining tasks—remains unresolved.
Key Questions
What does the report mean by saying services account for about four in five U.S. workers?
The article cites an International Labour Organization estimate that services represented 79.6% of all U.S. workers in 2025. A separate BLS-based calculation puts services at 86% of nonfarm payroll jobs; that measure excludes farm workers and the self-employed.
What is Baumol’s cost disease?
It describes how costs can rise in work where productivity is difficult to increase, even as other industries become more productive and wages rise across the economy. The article uses a live quartet to illustrate work that still requires a fixed amount of musicians’ time.
Did the cited AI study show that customer-support jobs were eliminated?
No such finding is reported. The article says an AI assistant increased issues resolved per hour by 15% on average among 5,172 agents. It does not say whether jobs, wages or staffing levels changed.
Why does the report compare U.S. and German health spending?
It reports that health spending equaled 18.0% of the U.S. economy and 12.4% of Germany’s. The comparison suggests that productivity pressures do not alone account for different national spending levels, but the article does not isolate the causes of that gap.
Source: ThorstenMeyerAI.com
