Baumol's Cost Disease

In a way, I thought about this when I changed my career the last time.

I had worked in what I will call "high end" tech support for some proprietary (and some less proprietary) networking equipment.

My job generally paid great and customers paid big support contracts, good deal for a good 20 years. But Tech Support is never glamorous, executives eventually think of them as just problems (even if they're solving problems) because that's all they hear. Quality management jumps to other more glamours departments and so on.

I was not so sad when a layoff occurred (company sold for parts and most of support was cut because more people on balance sheet looks costy). eventually and I learned to code late in life and got a new job / career.

Amusingly while I was learning to code a former coworker. (one of the people developing the products) at a company who bought some of the products I supported for a good 20 years reached out and said I should apply for a remote support job. I wasn't enthused but I did thinking they might make a good offer ... I never heard anything back. I was maybe one of 100 people who worked on those products in that capacity, I could have gone to work and done the job fabulously in an instant. Former coworker asked around was told "he doesn't have masters degree in CS". I wonder how those CS masters guys cost?

I got a lot of stories from that coworker how support was a complete disaster for a long long time at that company.

People rightfully complain about tech support, and I always think "Yeah they're bad because anyone who knows how to do it ... does not stick around."

Related. Others?

The Baumol Effect and Jevons paradox are related - https://news.ycombinator.com/item?id=45955879 - Nov 2025 (67 comments)

Baumol Effect - https://news.ycombinator.com/item?id=43065115 - Feb 2025 (1 comment)

The Baumol effect - https://news.ycombinator.com/item?id=35220758 - March 2023 (77 comments)

Baumol Effect - https://news.ycombinator.com/item?id=24812620 - Oct 2020 (99 comments)

Baumol Effect - https://news.ycombinator.com/item?id=20443675 - July 2019 (62 comments)

William Baumol, author of 'cost disease' theory, has died - https://news.ycombinator.com/item?id=14284466 - May 2017 (33 comments)

Baumol's Cost Disease - https://news.ycombinator.com/item?id=12679629 - Oct 2016 (1 comment)

Is productivity the victim of its own success? - https://news.ycombinator.com/item?id=11964673 - June 2016 (57 comments)

Baumol's Cost Disease: Why Artists are Always Poor - https://news.ycombinator.com/item?id=972082 - Dec 2009 (14 comments)

Is this just inflation viewed from the lens of labor cost or is it substantively different?

There also seems to be other things at play. Are textbooks really so much more expensive because of rising wages? Someone explain that one to me.

Really interesting stuff. Am I correct in thinking that if productivity were to rapidly increase in the service sector (e.g. due to AI) the same way it did in the manufacturing sector in the 19th and 20th centuries, that the cost of services would decrease?

Also, a side note: I dislike a lot of the popular conversation around the Baumol effect because they’re usually along the lines of “this can’t be the only reason my healthcare or education is expensive”, which is true (there are other factors at play), but the Baumol effect still explains a lot of it.

It seems relevant that the categories healthcare, housing, and higher education are not paid by wages/cash but rather through various means of financing (in the form of insurance for healthcare). (In addition to not being outsourcable).

New cars not increasing looks strange but that might be a US phenomena, where most cars might be imported and the median car have "shrunk" in size over the period.

The submission is titled with "Cost Disease", though the Wikipedia article has the more neutral term "Effect". But it is important to remember that money is a relative resource, not a real resource. If some sectors of the economy become drastically more efficient, and some do not, overall society has become wealthier, even if the prices in the latter sectors rise a lot.

I can’t help but notice the items of increasing price / cost are not optional / discretionary purchases. Price can increase and not affect demand. Whereas the items decreasing in price are all subject intense competition and price sensitivity.

The clearest example I’ve seen of this effect is with dental hygienists in the U.S.. Big labor crunch as lots of industry veterans left the labor force during COVID, wage and career growth prospects are weak vs. alternative options for newcomers, very difficult to automate in practical terms, and the way they produce revenue is usually per-procedure, with a ceiling largely fixed by insurance reimbursement rates, so the offices that employ them see a profitability issue when contemplating a raise.

Sounds like some other places use capitation to break the tight coupling between hourly productivity and profitability. Sounds interesting but politically very challenging. Would be interested to hear some perspective from consumers in e.g. the Nordics with experience.

> the 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

Since when has wages been based on productivity?

Computer software is on the chart as getting cheaper with time but that can’t be right? I remember Photoshop used to be a disc and you owned it for a reasonable price and now you subscribe to the Adobe protection racket. Software as a service would be a service which should go in the top of the graph with other extortionists like colleges and hospitals.

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1. This is certainly a real effect that has some effect on relative wages at the margins in some cases.

2. In 2025 if you hear someone talking about it in the context of the US economy you are most likely hearing propaganda, designed to provide a dodge for the real driver of higher costs which is mostly concentrated corporate power, consolidation, and collusion.

One implication of this is that we need regulatory improvements (ie improvement via negativa, less) for healthcare, childcare, education, and building new housing. It’s non-ideal when government policies restrict supply and restrict competition, and entrench existing players.

I'm skeptical that anything actually is cheaper when normalized by offset wages. like sure you can buy a TV for cheaper, but isn't that just because now you have cheap labor and arbitrage? software is the main exception here. what physical product is actually cheaper when you remove offset labor arbitrage?

this would also explain why things that are not subject to said arbitrage do not actually get cheaper, e.g. anything that must be done locally.