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Baumol's cost disease

    '''Baumol's cost disease''' (also known as the Baumol Effect) is a phenomonon discovered by William J. Baumol and William G. Bowen in the 1960s In a range of businesses such as the car manufacturing sector and the retail sector workers are continually getting more productive due to technological innovations In contrast in some labor-intensive sectors such as education or the performing arts there is little or no growth in productivity over time with the result being that per-unit costs tend to inflate
    The original study was conducted for the performing arts sector Baumol and Bowen pointed out that one needs the same number of musicians to play a Beethoven string quartet today as one would have needed in the 1800's Baumol's cost disease is often used to explain the increasing costs of bureaucracy As public administration has little growth in productivity the upkeep costs of the bureacracy will inflate quicker than the growth in the GDP
    Baumol's cost disease is often used to describe the lack of growth in productivity in public services such as public hospitals and state colleges The desirable range of student-teacher or patient-nurse ratios puts a limit on the increase of productivity To lower the price of hospital care or education one would have to lower the quality of the service provided

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