Baumol's Cost Disease
Labour-intensive services become relatively more expensive as productivity and wages rise elsewhere. The old repair economy was cheap partly because workers had fewer well-paid alternatives—not because repairing things was inherently more efficient.
The repairman of the past did not make fixing things cheap through some lost mastery. He was cheap because almost everyone was poor. Once that same worker can earn far more elsewhere, yesterday’s bargain-priced repair disappears.
E1The software salary reaches the repair shop
Some sectors can multiply output per worker; a labour-intensive repair still consumes roughly the repairer’s time. Yet wages cannot remain isolated. When software and other fast-growing industries offer better pay, workers can switch, so slower-productivity sectors must raise salaries to retain them. The service therefore becomes costlier relative to mass-produced goods even without becoming more wasteful. Its price increasingly reflects the worker’s opportunity cost: what that person could earn instead.
E1 E2Where it shows up
The vanishing cheap repair
A repair that once seemed economically sensible may now cost enough to make replacement attractive. What changed is not necessarily the task, but the repairer’s alternative wage.
E1Software pulls on distant wages
High software salaries affect more than software firms. Other industries must pay more because their employees can leave, transmitting productivity gains—and labour costs—across the economy.
E2Not every price rise is cost disease
Price the worker’s next-best job
Episodes that teach this
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The Past Sucked - Here’s The Truth No One Wants to Admit - FutureIQ
· explained at 2:34
14,252 views
Repairing was cheaper because repairmen were cheaper because everybody was poor in those days... today that person can go and earn much more somewhere else. It's called Baumol's cost disease.
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This Video Will Cost You $100 Dollars - Opportunity Cost Explained - FutureIQ
· explained at 14:25
3,555 views
Other industries' salaries must increase because employees otherwise can switch to software.