Why does the service sector have lower productivity improvements than the manufacturing sector?

The service sector typically experiences lower productivity improvements than the manufacturing sector primarily because it is more labor intensive. In the service industry, work is often performed by individuals rather than through automated processes and machinery, which can limit the potential for significant productivity gains.

Manufacturing processes can be streamlined and optimized through automation and advanced technologies, enabling companies to produce more output with less labor input over time. In contrast, the service sector often relies on human interactions, personal attention, and customized solutions, which are inherently less scalable. Service delivery often requires a direct connection between service providers and customers, which makes it challenging to improve efficiency in the same way that automated manufacturing processes can.

Additionally, improving productivity in the service sector may require substantial changes in how services are provided, which can be more complex and difficult to implement compared to manufacturing efficiencies. As a result, despite innovations and improvements, the service sector tends to show lower productivity advancements relative to manufacturing.