Baumol's theory doesn't say anything about wages [including benefits] except to assume that they are equalized between sectors (adjusting for skill, etc.) or follow the same general trend. With wages equalized, the reasonable assumption that the service sector sees less productivity growth than the goods-producing sector means that unit labor costs (wage divided by labor productivity) in the service sector rise faster than in the goods-producing sector. Thus, with mark-ups on unit labor costs constant, prices in the service sector rise relatively. Going beyond Baumol, this suggests that the pressure to cut wages would be greater in the service sector, because it would counteract the relative rise in prices. Jim Devine [EMAIL PROTECTED] http://myweb.lmu.edu/jdevine
________________________________ From: PEN-L list on behalf of Michael Hoover Sent: Sat 2/5/2005 6:18 AM To: [email protected] Subject: [PEN-L] Baumol's 'Disease'? according to william baumol, declining prices for produced goods in a 'high-tech' economy will - at some point - cause wages in labor-intensive services to increase... is above correct formulation, if not, what is... is baumol's disease an economic 'law'... thanks in advance for comments... michael hoover -------------------------------------------------------------- Please Note: Due to Florida's very broad public records law, most written communications to or from College employees regarding College business are public records, available to the public and media upon request. Therefore, this e-mail communication may be subject to public disclosure.
