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It's intended to capture the idea that wages rise in an industry despite per-employee output not rising, which is against the "marginal wage equals marginal pro

It's intended to capture the idea that wages rise in an industry despite per-employee output not rising, which is against the "marginal wage equals marginal production" basis of classical Marshallian economics. Ironically, given the examples in the article, Baumol's example of cost disease was musicians.

lotsofpulp 6y ago
> against the "marginal wage equals marginal production" basis of classical Marshallian economics. I am not aware of Marshallian economics, but I was under the impression that prices (wages) moved along supply and demand curves, and do not have anything to do with production.
- notacoward 6y ago
  > do not have anything to do with production So concepts like efficiency and elasticity don't matter? The supply and demand curves for different goods and services varyfor specific reasons. Those reasons are worth studying, and sometimes naming.
- thedufer 6y ago
  There are different ways of figuring out what a wage will end up being, and looking at how they interact (which is what Baumol's Cost Disease does) can be tricky but enlightening. Supply/demand is one such way. Another is related to elasticity. If a given job can produce $1.00 of value but the next person qualified for that job only expects $.90, someone should be expected to create that job and capture the surplus. And this should continue until the value produced by the next such job is right at the value produced by that job. So you often expect that the wage of a job should be the value produced by that job, at least at the margin. Baumol's Cost Disease shows how when one job's value increases, the wage in jobs that require similar skills can see a growth in wages beyond the degree to which it's value increases - that is, the first job following the model described above causes another job to stop following that model and instead be lifted into a supply/demand model.

lotsofpulp 6y ago

> against the "marginal wage equals marginal production" basis of classical Marshallian economics. I am not aware of Marshallian economics, but I was under the impression that prices (wages) moved along supply and demand curves, and do not have anything to do with production.

notacoward 6y ago
> do not have anything to do with production So concepts like efficiency and elasticity don't matter? The supply and demand curves for different goods and services varyfor specific reasons. Those reasons are worth studying, and sometimes naming.
thedufer 6y ago
There are different ways of figuring out what a wage will end up being, and looking at how they interact (which is what Baumol's Cost Disease does) can be tricky but enlightening. Supply/demand is one such way. Another is related to elasticity. If a given job can produce $1.00 of value but the next person qualified for that job only expects $.90, someone should be expected to create that job and capture the surplus. And this should continue until the value produced by the next such job is right at the value produced by that job. So you often expect that the wage of a job should be the value produced by that job, at least at the margin. Baumol's Cost Disease shows how when one job's value increases, the wage in jobs that require similar skills can see a growth in wages beyond the degree to which it's value increases - that is, the first job following the model described above causes another job to stop following that model and instead be lifted into a supply/demand model.