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> the tendency for wages in jobs that have experienced little or no increase in labor productivity to rise in response to rising wages in other jobs that did experience high productivity growth Since when has wages been based on productivity?
Productivity has always imposed an upper limit on wages.
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Your conclusion falls victim to the same conflation you’re calling out. If some sectors become drastically more efficient, society has become wealthier in terms of money, but not necessarily in terms of real resources. For example, consider a case where finance becomes much more productive (in terms of $ per employee-hour) and raises wages to attract smart people, leading to fewer people becoming doctors because fina…
The Baumol effect says wages for doctors will also have to go up. Society can afford this because it now has commensurately more resources due to increased efficiency. It’s a tide that raises all boats, precisely because of this effect. This is why a taxi in London costs and pays better than the same service in Cairo.
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And you’re not going to convince me that collaboration is so valuable that it’s worth corrupting the whole medical establishment, and simultaneously not valuable enough for you to pay what it costs to do it.
I have nothing to do with the medical establishment. I do know that the conferences I do attend are subsidized by companies in the tech space in various ways. You're welcome to bemoan that of course although I'm pretty sure neither of us are in a position to overturn decades-long (at least) practice.
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Ok, you must be taking the piss. VLC doesn’t advertise. If you search for VLC downloads and click an advertisement for VLC, you’re going to be downloading malware. Even someone who thinks advertising is a modern miracle must be aware of this.
...that was my point? You are so close to getting it.
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Your conclusion falls victim to the same conflation you’re calling out. If some sectors become drastically more efficient, society has become wealthier in terms of money, but not necessarily in terms of real resources. For example, consider a case where finance becomes much more productive (in terms of $ per employee-hour) and raises wages to attract smart people, leading to fewer people becoming doctors because fina…
The Baumol effect says wages for doctors will also have to go up. Society can afford this because it now has commensurately more resources due to increased efficiency. It’s a tide that raises all boats, precisely because of this effect. This is why a taxi in London costs and pays better than the same service in Cairo.
Earlier quoted context omitted.
Your conclusion falls victim to the same conflation you’re calling out. If some sectors become drastically more efficient, society has become wealthier in terms of money, but not necessarily in terms of real resources. For example, consider a case where finance becomes much more productive (in terms of $ per employee-hour) and raises wages to attract smart people, leading to fewer people becoming doctors because fina…
The Baumol effect says wages for doctors will also have to go up. Society can afford this because it now has commensurately more resources due to increased efficiency. It’s a tide that raises all boats, precisely because of this effect. This is why a taxi in London costs and pays better than the same service in Cairo.
> ...consider a case where finance becomes much more productive... leading to fewer people becoming doctors because finance is much more attractive.
This is the opposite of what one would expect from a sector whose efficiency increases, as modeled by Baumol. See the first bullet in the article: "The share of total employment in sectors with high productivity growth decreases, while that of low productivity sectors increases" (also see the detailed analysis in the Technical Description section). It might be theoretically possible that induced demand could still increase overall employment in a sector as its efficiency increases, but I think you have to make an argument why that would be true. During the industrial revolution, automation eliminated 98% of the labor required to produce a yard of cotton cloth, but between 1830 and 1900 the number of weavers in the US increased by a factor of 4, because demand increased due to lower prices [0]... although the US population also increased by a factor of 6, so as a percentage of the workforce weavers still declined, even as people consumed much more cloth per capita.
[0] James Bessen, Learning by Doing - The Real Connection between Innovation, Wages, and Wealth (2015), pp. 96–97.
The submission is titled with "Cost Disease", though the Wikipedia article has the more neutral term "Effect". But it is important to remember that money is a relative resource, not a real resource. If some sectors of the economy become drastically more efficient, and some do not, overall society has become wealthier , even if the prices in the latter sectors rise a lot.
> money is a relative resource I think this is the better way to think of money and wealth: Money is the unit of measure for wealth. It's not in itself wealth.
The submission is titled with "Cost Disease", though the Wikipedia article has the more neutral term "Effect". But it is important to remember that money is a relative resource, not a real resource. If some sectors of the economy become drastically more efficient, and some do not, overall society has become wealthier , even if the prices in the latter sectors rise a lot.
That's assuming all sectors have become more efficient. Some, like construction, have become less efficient. And that's a big problem when it's relevant to necessities like housing.
Suppose people used to spend 20% of their income on housing and healthcare and 20% on apparel and electronics. Then housing and healthcare triple in price, apparel drops by two thirds, electronics drops by 98%, and everything else stays the same. Are they better off? No, because the most you can improve the cost efficiency of something is 100% (it becomes free), but the things that that cost more can increase in cost by more than 100% of the original cost, and some of them have.
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> If some sectors of the economy become drastically more efficient... overall society has become wealthier That's a weird one - what's your metric for the "wealth of overall society"? Stock market indexes can't be it because those are subject to extreme levels of unreported inflation and gaming. How can you measure something that is subject to extreme inflation when that inflation is not only unmeasured but not even…
The main metrics are mean and median real income (i.e. inflation-adjusted). Baumol's only occurs if mean real income rises. Unless inequality rises simultaneously, then median real income (the metric most people care about) will rise as well.
Society produces housing and other necessities and people consume them in some amount and then have what's left as disposable income to spend on whatever they like, e.g. for going on dates.
Then a law is passed prohibiting the construction of housing with more than two stories. Building ten housing units on ten lots with ten foundations requires more labor than constructing ten units all on the same lot, so the price of housing increases, people have to spend more on housing and have less money left to buy flowers and some people quit their jobs at the flower shop to go pour concrete (while still getting paid exactly the same amount as before).
There is zero change in inequality but the cost of something has gone up and people have to eat it by getting less of something else.
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The Baumol effect says wages for doctors will also have to go up. Society can afford this because it now has commensurately more resources due to increased efficiency. It’s a tide that raises all boats, precisely because of this effect. This is why a taxi in London costs and pays better than the same service in Cairo.
Exactly. Even though Baumol himself used the phrase "Cost Disease", I think that framing distracts from the fact that it is a result of something desirable happening , namely increased efficiency in some sectors. You could also posit a case where some sectors become less efficient, due to badly conceived regulations, exhaustion of non-renewable resources, an unchecked monopoly, or some other factor, but you don't nee…
Imagine some new math allows HFT to make more money. HFT firms wouldn’t start laying off quants. They’d probably hire more to try to capture more of that new money, and they’d have more money available for hiring.