Baumol’s cost disease, named after economist William J. Baumol, describes a phenomenon where labor-intensive industries experience rising costs despite low productivity gains.
While technological advancements boost productivity in some sectors, those reliant on human labor, like healthcare and education, see slower productivity growth.
As wages rise in line with more productive industries, costs in labor-intensive sectors increase without corresponding efficiency gains. This can lead to a growing share of resources allocated to less-productive sectors, contributing to overall economic challenges.
