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Why a haircut keeps getting pricier — but a TV keeps getting cheaper
💡 When some industries get more productive, the wages — and therefore prices — of hard-to-automate services rise too, even though those workers are no more efficient than before.
In 1966, economists William Baumol and William Bowen noticed something odd about live music. Playing a Mozart string quartet takes exactly four musicians and the same number of minutes today as it did in 1800 — there's no way to make it 'more efficient.' Yet ticket prices have climbed far faster than inflation. Their explanation is now called Baumol's cost disease.
Here's the logic. In a factory, workers get more productive every year — better machines let one person make more phones per hour — so wages can rise without prices rising. But musicians, teachers, nurses, and barbers can't easily boost their output per hour. A haircut still takes about the same time. The catch: these workers compete for the same labor pool as the high-productivity industries. To keep a talented person from leaving for a factory or tech job, their wages must rise too — even though their productivity didn't.
The result: the cost of labor-intensive services whose output can't be automated (live performance, education, healthcare, elder care) steadily outpaces the cost of manufactured goods. It's not waste or greed — it's a structural side effect of some sectors getting more efficient while others physically can't.
This quietly explains one of the biggest puzzles of modern economies: why gadgets get cheaper every year while college tuition, hospital bills, and concert tickets keep climbing.