Baumol Effect

Salaries rise in response to other salaries rising in jobs that experience productivity gains. For example, the ticket prices in the classic arts rises not because they can put on a concert with half the orchestra, but because the salaries of their patrons has grown. A more provocative example is management—labor productivity of managers has not grown exponentially, but salaries of engineers have.

See also:

  • Peter Principle, traditionally management is a promotion and therefore needs to be paid more, amplifying Baumol’s cost disease