Comment by msteffen
7 hours ago
TIL! I’m entirely inexpert in the topic and posted as a curious layperson.
That said, some of what’s in the article only makes sense to me in the context of a system that’s at least somewhat like what I tried to describe. Maybe you can enlighten me?
> This effect is an example of cross elasticity of demand.
Is the cross-elasticity of demand here not referring specifically to the cross-elasticity of different forms of labor, which exists due to the many common inputs of different forms of labor? Eg land, healthcare, unskilled labor (as an input, in the case of skilled labor as the output—doctors and engineers in my comment)?
In the case of a quartet, if musicians charged what they did in 1700, they would quickly become homeless, and then quickly get other jobs.
So people are either leaving the profession or raising their prices, and either firms pay, high-wage-earners pay, or they get no customers and again get other jobs (like the rope-holders). Is that not the effect?
>...Is the cross-elasticity of demand here not referring specifically to the cross-elasticity of different forms of labor, which exists due to the many common inputs of different forms of labor?
This isn't necessary to explain Baumol cost disease. Different kinds of workers may also be substitutes for one another, or complements. However, the quartet doesn't need to share a particular set of inputs with car manufacturing for Baumol's mechanism to operate.
>...In the case of a quartet, if musicians charged what they did in 1700, they would quickly become homeless, and then quickly get other jobs.
Yes. Baumol cost disease is a way to explain the upward pressure on the cost of lower productivity labor-intensive services. It isn't an economic law, it is a tendency. It doesn't guarantee that every business will be able to pass those costs on to customers, or that every business will survive or that every worker will receive the same wage increase, etc.