Baumol Cost Diesease

The 50 Second Waltz?

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One of the issues always brought up by companies when pressed to raise the wages of their employees is that productivity is not increasing.

And, like I’ve written so many times, productivity increases require companies to invest in new technology. And, since companies are reluctant to spend money (on anything BUT executive salaries), that ain’t happening.

Moreover, the only place where real productivity increases can occur is when there is a large component of labor n the production of their “widgets”.

But, now, let’s think a little deeper about this. I have been developing new products and processes for years. And, when I started out developing these great new ideas, I managed to create two or three new concepts every year. (One fantastic year, there were nine!) And, I knew I would switch specialties when my ability to come up with at least two new products a year had dissipated.

And, there’s no way you can “improve” on my productivity to develop those concepts. Of course, the wider the range of reading, the less demands placed on me to perform menial, daily tasks- they let me spend more time “daydreaming”. However, you are not going to see a 5% increase in my productivity.

(Trust me- the year I produced 9, the firm really thought I was productive. But, it was a combination of luck, serendipity, and probably way too much wine.)

The same rules apply to the theater, to concerts, to opera.   An actor may need less rehearsals to master a part- but once the part is cast and ready to go, a five person Broadway show will always take 5 persons, 94 minutes of time, every single time. Sure, you can do what they do in Chicago- build theaters that house 2000 patrons (versus the 200 or so that inhabit those along Broadway), but that’s not really productivity. (Actually, it’s the concept of technology- one has to invest in newer buildings, better voice amplification, etc. to reach the wider audience.)

Nor, can a symphony use fewer instruments. (Oh, yeah. I forgot. Some folks think I would pay to listen to recorded music. Sure, I would, in the comfort of my own home. Not when I am paying to enjoy a musical or the latest Philip Glass opera!)

Baumol Cost Diesease

This phenomenon was suggested by Dr. William J. Baumol, an economist who taught at NYU and Princeton, who died last month (May 2017). He came up with this idea (termed “Baumol’s Disease”) some 50+ years ago. Not while examining economic phenomena, but to explain why the Met (the New York Metropolitan Opera) had recurring labor problems. He termed it the “disease” of labor intensive industries. After all, he noted that the time to ‘produce’ a Mozart quarter in the 1700’s uses the same number of players, instruments, and time as it does nowadays. This phenomenon is not just true for music, but for teaching, police officers, artists, among other labor-intensive fields.

Lower Wage Workers Exploited by Firms

Another place where technology is being invested… In McDonald’s restaurants. The chain, amply worried that they will finally have to pay their employees living wages, is seeking methods to replace employees with machines. Automatic fryers. Kiosks where we place our orders. (McDonald’s is fronting the funds for their franchisees to implement these practices. That’s how worried the company is.)

Of course, you can bet they’ll be fewer employees. So, the drain on our economy will become larger.

Isn’t it about time that we penalize McDonald’s, Walmart, and other firms that claim they make profits by paying their employees lower wages, leaving you and me to subsidize them (via Medicaid, Aid for Dependent Children, Welfare)? I’ve written about this so many times- and it’s so simple a concept.

When a firm claims to make 6% profits on revenue- but their workforce depends on state and federal aid to help them live their lives- that’s simply wrong. And, it’s about time these firms ante up the proper payroll.

And, I’m not against companies using technology to keep their costs at bay. Just against them cheating their employees of living wages to line their own coffers.Roy A. Ackerman, Ph.D., E.A.

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