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."
The say "pay peanuts, get elephants" exists for a reason.
A related thought I heard was "pay police and army well, because you don't want them to start looking for ways of making more money...".
Outside the assembly line, you aren't just paying for the work themselves but for the character of the person providing. Drive the wage down low-enough and only the desperate apply. I know that locally, one of the first jobs the agency can get recovering homeless drug addicts is a call-centre job. That explains a lot.
Can confirm! I'd also like to add that the employer is happy to keep you in that position for a decade or more (as long as the client keeps paying) but one job over an extended period of time reads very poorly on a resume. Switching is a disruption necessary for growth.
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)
Why are the prices so damn high - https://news.ycombinator.com/item?id=33150094 - Oct 2022 (2 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)
I don’t know about the aggregate data tbf
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.
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 sedan hasn't become more expensive, but people don't feel safe driving them anymore between all the large SUVs, this pushing more people towards buying more expensive cars.
For example, consider a case where finance becomes much more productive (in terms of $ per employee-hour) and raises wages to attract smart people, leading to fewer people becoming doctors because finance is much more attractive. Is society wealthier? The money says yes. The line goes up. But finance doesn’t set a broken bone or treat cancer. This may well have made society less wealthy in terms of what ordinary people actually care about.
Does it though? Suppose that Wall St has discovered a strategy, like high frequency trading, that produces nothing but allows the one doing it to extract a margin that would otherwise have gone to the second-fastest trader. Many people are employed in a competition to be the fastest because being the fastest is rewarded but it's a zero-sum game where nothing useful is produced and the players each have to continuously spend resources to keep running faster in order to stay in the same place.
What benefit is the person now paying more for healthcare getting in exchange for this?
> It’s a tide that raises all boats, precisely because of this effect.
What if it's not all boats? Suppose it causes doctors to get paid more because people who have the wherewithal to become doctors could also work in finance, but it doesn't cause retail clerks to get paid more because Wall St isn't hiring them away from their existing jobs, and in the meantime they now have to pay more for healthcare.
> ...consider a case where finance becomes much more productive... leading to fewer people becoming doctors because finance is much more attractive.
This is the opposite of what one would expect from a sector whose efficiency increases, as modeled by Baumol. See the first bullet in the article: "The share of total employment in sectors with high productivity growth decreases, while that of low productivity sectors increases" (also see the detailed analysis in the Technical Description section). It might be theoretically possible that induced demand could still increase overall employment in a sector as its efficiency increases, but I think you have to make an argument why that would be true. During the industrial revolution, automation eliminated 98% of the labor required to produce a yard of cotton cloth, but between 1830 and 1900 the number of weavers in the US increased by a factor of 4, because demand increased due to lower prices [0]... although the US population also increased by a factor of 6, so as a percentage of the workforce weavers still declined, even as people consumed much more cloth per capita.
[0] James Bessen, Learning by Doing - The Real Connection between Innovation, Wages, and Wealth (2015), pp. 96–97.
Now, advertising...
But this can go too far. In London during 2000-2008, finance consumed every spare IT worker, as well as mathematicians and physicists. Salaries were far higher working for a bank than working in any other IT-related industry or start-up. Did this produce great works? Is London now better off because of this? In a word, no.
> In economics, the Baumol effect, also known as Baumol's cost disease…
I think this is the better way to think of money and wealth:
Money is the unit of measure for wealth. It's not in itself wealth.
Money does have real value, but only because it can be traded for valuable things.
But money in itself, as bills or numbers in a bank account, is useless until you trade it for something "real".
That's assuming all sectors have become more efficient. Some, like construction, have become less efficient. And that's a big problem when it's relevant to necessities like housing.
Suppose people used to spend 20% of their income on housing and healthcare and 20% on apparel and electronics. Then housing and healthcare triple in price, apparel drops by two thirds, electronics drops by 98%, and everything else stays the same. Are they better off? No, because the most you can improve the cost efficiency of something is 100% (it becomes free), but the things that that cost more can increase in cost by more than 100% of the original cost, and some of them have.
Housing prices aren't going up because of construction costs alone. The biggest increase is from the cost of land. For that the cost of a house on top has become less and less relevant. If construction became really cheap, prices would still trend upwards since there's always some billionaire's money to be parked somewhere.
That's a weird one - what's your metric for the "wealth of overall society"? Stock market indexes can't be it because those are subject to extreme levels of unreported inflation and gaming.
How can you measure something that is subject to extreme inflation when that inflation is not only unmeasured but not even acknowledged as a phenomenon?
At present, the "wealth of overall society" is a unicorn metric as opposed to the perfectly measurable and extreme levels of income and wealth inequality. In other words, the overall losses from skewed distribution dwarf the gains from higher efficiencies.
Of course, this relies on the assumption most work - and hence most productivity - is a net social good. If the violinists have instead got jobs operating an orphan-crushing machine, that would be a bad thing. But hopefully your society is structured in such a way that the average worker is contributing to the prosperity of their local community.
GDP is known to be an imperfect measure, especially for capturing cottage industry and due to the distribution effect you described, but it's not horrible to start with.
The total accumulated wealth in a society is a related but entirely different number.
For housing, there's also significant location effects: One doesn't have to live in, say, Manhattan. People trade time for location, and then select the space they want. A whole lot of the space Americans use is completely optional. Go look at cities in Asia, or in Spain: You can have a city with an average density similar to NYC's Upper East side, but not even NYC comes close. That's not about a limitation of supply, but very specific policy choices.
It's similar in other mandatory things: In healthcare, the amount of things that are actually mandatory isn't that large, training to become a doctor is offered to far fewer people that would want the job, drugs can be handed long monopolies... It's not about non-discretionary, but mostly a regulatory problem. Same with American colleges, which waste an order of magnitude more money in what is shaped like an old luxury good. Anyone that has gone to a public university in continental Europe and to a US college can tell you it's a completely different good, and the American approach isn't all that focused on efficient education, as it's still shaped like a finishing school. And again, it's not necessary.
So I'd argue it's almost always regulation written to help certain incumbents, instead of inability of market forces to keep prices low even when it appears that a good is non-discretionary.
There exists greater friction with many of the items in red than the highly automated ones.
My question is how linked is this friction to the lack of automation?
With text books and meat packing there are few players due to consolidation. This means they can avoid investing in automation and keep prices high because they face less resistance from consumers and virtually none from competitors.
In short I’m asking if market forces are to blame for lower automation. And therefore automation is not the root cause of price increases.
If you're unable to eat because you spent all your resources paying for that residence near the grandparents you would certainly move.
The thing about status symbols is that you are buying them to feel better than someone else. So they almost have to be scarce - and therefore expensive. That's the basic idea behind cost disease; scarce things in an economy of abundance become more expensive, not less.
Better for whom? And better in what sense?
Long-term, on average, post-college careers still blow the trades out of the water in earnings.
In my case certainly, if I had bought into the “trades are better!!” online rhetoric I would be making far less money than I am now, and I get to work remote.
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.
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.
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.
If I can make one widget per hour, and some new tool lets me make 10 widgets per hour?
Conventional economic theory suggests the gain will be split between the widget-maker and the widget-consumer, in proportions determined by the relative slopes of the supply-demand curves, but definitely the product will become somewhat cheaper.
Since when has wages been based on productivity?
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.
[1] https://www.construction-physics.com/p/why-are-there-so-few-...
Still, that doesn't rule out other types of consolidation (that are not necessarily corporate in nature.) There are no new "cities" being built, and even if you want to live in a small suburban community, chances are that you want or need to live near a city for economic reasons. I bet a lot of people on this forum wouldn't even consider living outside of 15-mile radius of SFO or NYC.
For individual families, the choices are often even more constrained. Assuming a dual income household, it's unlikely both earners will be able to geographically relocate at the same time. So you end up with situations where new housing outside of economic centers is pointless to build, and new housing in economic centers is expensive or impossible to build due to regulations and existing suburban street layouts.
Bringing it back to Baumol, we can think of an invisible "land value tax" as rising much like a wage rises without an increase in productivity. Since we're not making new economically productive regions, the cost of living near one of the existing ones has to rise (and we're not doing anything to counteract those trends.)
I live in a high demand area. A perfectly cromulent house on a particularly good lot will sell for $1.5 million as a teardown. The new house will be 6,000+ sqft and be inhabited by a family of four. Builders won’t build smaller because the land price sets a hard floor. The most profitable and economically productive thing would be to split the lot and build several smaller houses, or build a small apartment building, housing several times more people for the same cost. But this isn’t legal. Construction costs don’t make a difference. If construction costs doubled, the new houses would just get smaller. Some of these teardowns would stop being torn down. The cost of living in the area would stay about the same.
So for example childcare & education both fall into high inflation because we almost demand that it be inefficient. Customers demand to know the worker:customer ratios, and expect them to be low. It's held up by universities as a measure of quality!
Similarly with medical care, you don't see a lot of efficiency-increasing changes over time. The process of going to the doctor when you are sick, getting a prescription, and picking it up at the pharmacy is about 90% the same as it was in the 1980s. Maybe Amazon's efforts with telehealth&pharmacy can help here, tbd.
Housing is partially land use / zoning, increased regulatory burdens with time on multi-family housing, and that home construction itself is still something of an artisan craft than an industrial automated process.
