Will Discovers Baumol’s Cost Disease

“Baumol’s cost disease” is the phenomenon by which the wages of workers in jobs that have not experienced an increase in productivity increase in response to increases in wages of workers whose jobs have increased in productivity. William Baumol identified the phenomenon and analyzed it fifty years ago. George Will has apparently now discovered it:

Goldberg’s 1962 encounter with Baumol’s disease in the Met’s orchestra initiated thinking that led in 1965 to the National Endowment for the Arts (and, on the Great Society principle of no conceivable claimant left behind, the National Endowment for the Humanities). This elicited Moynihan’s corollary to Baumol’s theory: “Activities with Baumol’s disease migrate to the public sector.”

Moynihan, thinking that it would be “the undoing of modern government” if there was too much migration, worried especially about health care. In 1993, at a health-care hearing before the Senate Finance Committee, Chairman Moynihan received blank looks when he asked three medical deans what they could do about Baumol’s disease. So Moynihan elaborated: “Montefiore Hospital was founded in New York City in the 1880s. At that time, how long did it take for a professor of medicine to make his morning rounds, and how many interns would he take along with him?”

Dean: “Oh, about an hour; say 12 interns.”

Moynihan: “And today?”

Dean: “Got it!”

Two fields that are frequently thought to suffer from the cost disease are health care and education.

Whatever the case in those two fields, I think that Baumol’s original findings may be suspect. He originally studied musicians. I can’t help but think that he was looking at the wrong statistics.

In 1900 the population of the United States was around 76 million and the number of musicians and music teachers was more than 92,000. In 2014 the population of the United States was about 320 million and according to the Bureau of Labor Statistics the number of musicians was around 173,000. In other words although population of the country had increased more than four-fold the number of musicians had less than doubled. Throughout the 19th century and the early part of the 20th century the number of musicians increased with the population. Now that’s obviously not the case.

There are any number of reasons for that not the least of which is electronic reproduction. Today when people listen to music they don’t listen to live music; they listen to recordings.

I haven’t been able to discover what the average musician was paid in 1900. I’m confident that it was lower in real terms than today’s average $24/hour ($24/hour would have been about $.80/hour in 1900 and that wasn’t a bad wage). But here’s my question. Is that due to Baumol’s cost disease or because musicians are relatively scarcer today? How do you disaggregate the two?

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