Baumol effect
Rise of salaries in jobs that have seen little rise of productivity
Baumol effect
In economics, the Baumol effect, or Baumol's cost disease, first described by William J. Baumol and William G. Bowen in the 1960s, is 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. In turn, these sectors of the economy become more expensive over time, because the input costs increase while productivity does not. Typically, this affects services more than manufactured goods, and in particular health, education, arts and culture. This effect is an example of cross elasticity of demand. The rise of wages in jobs without productivity gains results from the need to compete for workers with jobs that have experienced productivity gains and so can naturally pay higher wages. For instance, if the retail sector pays its managers low wages, those managers may decide to quit and get jobs in the automobile sector, where wages are higher because of higher...
Read on Wikipedia · Image HowMuch.net, a financial literacy website, CC BY-SA 4.0
Open boosters, collect cards and trade them. Free to play.
Play for free