Baumol's cost disease

The baumolsche cost disease ( according to William J. Baumol, 1967) referred to the problem of bad rationalizability of services compared to other sectors. To maintain the quality of services, wages, however, must keep up with the general wage increase of the population. Here is a dilemma.

Examples

It is hardly possible to reduce the number of teachers, without the quality of education would decrease. However, the wages have to keep up over time with the general wage increase.

The cost disease also affects artistic services.

The problem is to be transferred to the public sector. Wage costs in the public sector grow as strong as in private, however, the rationalization potential is lower. Thus, there is a greater growth of costs, resulting in an increase in government expenditure.