2 ms·
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 trick
by thedufer 5y 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.