Baumol's Cost Disease


Output: Press calculate


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Formula: RW = realWageIncrease / (1 + productivityGrowth)

Baumol's Cost Disease refers to the phenomenon where wages in jobs that haven't experienced corresponding productivity gains rise anyway because of wage increases in other jobs that have experienced such gains. Named after economist William Baumol, the formula used to describe this effect is RW, which is the rise in real wages adjusted for productivity growth. Here, realWageIncrease is the percentage increase in real wages, and productivityGrowth is the percentage increase in productivity. The formula shows how much real wage increases when comparing it to sectors with increased productivity. It's particularly useful for understanding cost dynamics in service industries, like healthcare and education, which often don't experience significant productivity gains compared to sectors like manufacturing.

Tags: Economics, Productivity, Wages, Inflation