Baumol's cost disease

Okay kiddo, let me explain to you something called Baumol's cost disease. Imagine you and your friend both want to make some money by performing a dance routine at a birthday party.

Your friend's mom agrees to pay both of you $10 each for every performance. So, you and your friend start rehearsing and performing at parties.

After a while, you realize that you're spending a lot more time practicing than your friend. But, you're still getting paid the same amount as your friend. Meanwhile, your friend isn't spending as much time practicing, but still getting paid the same as you.

This is kind of like Baumol's cost disease.

Baumol's cost disease is the idea that even if the productivity of some performers increases (like you), their wages cannot increase at the same rate because their profession is also influenced by others who don't have the same increase in productivity (like your friend).

This can be seen in things like music concerts, where ticket prices tend to increase over time even if performers are not making more money. The reason for this is that the cost of things that influence the performance, such as venue maintenance and security, also increases over time.

So, just like you and your friend, even if one group of people becomes more productive, their wages cannot increase as much as their productivity. I hope that helps, kiddo!