Which theory explains rising relative costs in labor-intensive services with slow productivity growth?

The theory that explains rising relative costs in labor-intensive services with slow productivity growth is Baumol's cost disease.

William J. Baumol and William G. Bowen developed the idea in the 1960s while studying the performing arts. A string quartet, for example, still requires musicians to spend roughly the same amount of time performing a work, even as factory productivity rises elsewhere. Employers in stagnant-productivity sectors must nevertheless raise wages to compete for workers whose alternatives have become better paid.

Those higher labor costs make services such as education, health care, legal work, and live performance more expensive relative to manufactured goods. The theory does not necessarily imply waste or poor management: prices can rise because the service remains labor-intensive while other sectors become dramatically more efficient. It is also called the Baumol effect. A common mix-up is Dutch disease, which concerns currency appreciation and declining competitiveness after a resource boom, not slow productivity in services.