Baumol effect

Proper noun

Baumol effect

1. A theorem stating that there is a 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.
   • The Baumol effect may arise if (i) price inflation in the medical sector changes HCE, (ii) macroeconomic labour productivity changes due ot ageing, and (iii) labour productivity change in the health care sector lags behind labour productivity change in the rest of the economy.2014, Ed Westerhout, “Ageing and health care expenditure growth”, in Kate Hamblin, Sarah Harper, editors, International Handbook on Ageing and Public Policy, Edward Elgar, →ISBN, page 184
   • Tabarrok prefers to call it the Baumol effect, because it is an inevitable consequence of the falling costs of production (and hence prices) of some goods, that other goods will become relatively more expensive.[2022 September 8, Erwin Dekker, “Introduction –The Work of William J. Baumol: Heterodox Inspirations and Neoclassical Models”, in Carlos Eduardo Suprinyak, Luca Fiorito, Scott Scheall, editors...

   Synonyms:

   cost disease