Baumol’s Cost Disease

Baumol’s Cost Disease is an economic phenomenon where the costs of services, especially those that are labor-intensive like education and healthcare, rise more slowly than the costs of goods in other sectors, like technology. As productivity increases in goods-producing industries, wages in all sectors tend to rise. However, services that can't easily improve productivity, like teaching or nursing, must pay higher wages without becoming more efficient. This leads to higher prices for these services, causing a gap where wages increase but productivity doesn't, resulting in a costlier service sector over time.