| ▲ | opo 3 hours ago | |
>I think this is what Baumol’s cost disease is about (productivity growth on one sector drives up labor costs and ultimately prices in other sectors, This is a clear and accurate description, but your explanation of the underlying reasons isn't really as clear. >1. students go into new lucrative thing Part of the Baumol effect is that the share of total employment in the sectors with high productivity growth decreases, while that of low productivity sector increases. This is sort of the opposite of what you are saying. >2. supply of doctors goes down The Baumol effect by itself has no effect on the number of Doctors. There are always more qualified people who want to be Doctors than are allowed to be Doctors for a great number of reasons. It isn't because not enough people want to be Doctors. 3, 4, 5 Yes those look like the Baumol effect. 6, 7 Not really what the Baumol effect is talking about. Baumol illustrated his point in a simple manner. In the 1700's a string quartet required four musicians, and today a string quartet still requires four musicians (no productivity gain). However, those musicians today expect 21st-century salaries to match the rest of the economy, making the cost of hiring a quartet vastly more expensive relative to goods like mass-produced items. The wikipedia entry looks pretty well done: | ||
| ▲ | msteffen 2 hours ago | parent [-] | |
TIL! I’m entirely inexpert in the topic and posted as a curious layperson. That said, some of what’s in the article only makes sense to me in the context of a system that’s at least somewhat like what I tried to describe. Maybe you can enlighten me? > This effect is an example of cross elasticity of demand. Is the cross-elasticity of demand here not referring specifically to the cross-elasticity of different forms of labor, which exists due to the many common inputs of different forms of labor? Eg land, healthcare, unskilled labor (as an input, in the case of skilled labor as the output—doctors and engineers in my comment)? In the case of a quartet, if musicians charged what they did in 1700, they would quickly become homeless, and then quickly get other jobs. So people are either leaving the profession or raising their prices, and either firms pay, high-wage-earners pay, or they get no customers and again get other jobs (like the rope-holders). Is that not the effect? | ||