Higher education – the weakest link

Baumol’s cost disease – What plagues higher education

In 1966, William Baumol and William Bowen looked at the origins of rising salaries for live performances (music, theater, dance), and noted that an underlying issue was that such performances could not easily be made more efficient – productivity could not be increased (Baumol and Bowen, Wikopedia). The oft-quoted ( and quite convincing) formulation of this concept is that a Beethoven quartet must be performed by exactly the same number of musicians today as was required in the 19th century, and that the quartet requires roughly the same amount of time to perform. No increase in productivity over two centuries! This inability to increase productivity should, according to simple economic arguments, lead to flat incomes – rising income usually is a result of increased productivity. However, despite this, salaries in the performing arts had risen over time. Baumol and Bowen concluded that this occurred because it was necessary to keep salaries on a par with those in industries that were seeing productivity increases in order to keep workers in the performing arts. This “push” of salaries in industries without productivity increases is called Baumol’s cost disease.

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