I think this is a real phenomenon, although I don’t think the best point of comparison is the Baumol effect. The Baumol effect is all about the differential impact on different sectors, wheras this would be a kind of universal effect where it’s harder to use money to motivate people to work, once they already have a lot of money.
I think a closer point of comparison is simply the high labor costs in rich first-world nations, compared to low labor costs in third-world nations. You can get a haircut or eat a nice meal in India for a tiny fraction of what it costs to buy a similar service in the USA. Partly you could say this is due to a Baumol effect of a sort, where the people in the USA have more productive alternative jobs they could be working, because they’re living in a rich country with lots of capital, educated workers, well-run firms, etc. But maybe another part of the equation is that even barbers and cooks in the USA are pretty rich by global standards?
As a person becomes richer, it’s perfectly sensible IMO for them to become less willing to do various menial tasks for low pay. But of course there are still some menial tasks that must get done! Imagine a society much richer than ours—everyone is the equivalent of today’s multimillionares (in the sense that they can easily afford lots of high-quality mass-manufactured goods—they own a big home, plus a few vacation homes, a couple of cars, they can afford to fly all over the world by jet, etc), and many people are the equivalent of billionaires / trillionaires. This society would be awesome, but it would’t really be quite as rich as it seems at first glance, because people would still have to perform a bunch of service tasks; we couldn’t ALL be retired all the time. I suppose you could just go full-Baumol and pay people exorbitant CEO-wages just to flip burgers at mcdonalds. But in real life society would probably settle on a mix of strategies:
Making jobs more enjoyable, so people /want/ to do them more, and you don’t have to pay them so much to incentivize them. Things like providing a comfortable work environment, trying to have a positive social vibe in the workplace, finding ways to make the work more fun or satisfying than it would normally be (even if this comes at some cost to efficiency).
Trying to “pay people” in appreciation and (ever-scarce) social status instead of (abundant, ineffective) cash where possible, et cetera. But of course, overall, social-status is somewhat of a zero-sum game, so idk how much juice you could squeeze there...
Trying to simply minimize the amount of unnecessary service work—lots more automation wherever it’s feasible, even in situations where this creates a slightly downgraded experience for the consumer.
And then, indeed, just paying people a ton more.
I think strategies like these are already at work when you look at the difference between poor vs rich nations—jobs in rich countries not only pay more but are also generally more automated, have better working conditions, etc. It’s funny to imagine how the future might be WAY further in the rich-world direction than even today’s rich world, since it seems so unbalanced to us (just like how paying 30% of GDP for healthcare would’ve seemed absurd to preindustrial / pre-Baumol-effect societies). But it’ll probably happen!
I think this is a real phenomenon, although I don’t think the best point of comparison is the Baumol effect. The Baumol effect is all about the differential impact on different sectors, wheras this would be a kind of universal effect where it’s harder to use money to motivate people to work, once they already have a lot of money.
I think a closer point of comparison is simply the high labor costs in rich first-world nations, compared to low labor costs in third-world nations. You can get a haircut or eat a nice meal in India for a tiny fraction of what it costs to buy a similar service in the USA. Partly you could say this is due to a Baumol effect of a sort, where the people in the USA have more productive alternative jobs they could be working, because they’re living in a rich country with lots of capital, educated workers, well-run firms, etc. But maybe another part of the equation is that even barbers and cooks in the USA are pretty rich by global standards?
As a person becomes richer, it’s perfectly sensible IMO for them to become less willing to do various menial tasks for low pay. But of course there are still some menial tasks that must get done! Imagine a society much richer than ours—everyone is the equivalent of today’s multimillionares (in the sense that they can easily afford lots of high-quality mass-manufactured goods—they own a big home, plus a few vacation homes, a couple of cars, they can afford to fly all over the world by jet, etc), and many people are the equivalent of billionaires / trillionaires. This society would be awesome, but it would’t really be quite as rich as it seems at first glance, because people would still have to perform a bunch of service tasks; we couldn’t ALL be retired all the time. I suppose you could just go full-Baumol and pay people exorbitant CEO-wages just to flip burgers at mcdonalds. But in real life society would probably settle on a mix of strategies:
Making jobs more enjoyable, so people /want/ to do them more, and you don’t have to pay them so much to incentivize them. Things like providing a comfortable work environment, trying to have a positive social vibe in the workplace, finding ways to make the work more fun or satisfying than it would normally be (even if this comes at some cost to efficiency).
Trying to “pay people” in appreciation and (ever-scarce) social status instead of (abundant, ineffective) cash where possible, et cetera. But of course, overall, social-status is somewhat of a zero-sum game, so idk how much juice you could squeeze there...
Trying to simply minimize the amount of unnecessary service work—lots more automation wherever it’s feasible, even in situations where this creates a slightly downgraded experience for the consumer.
And then, indeed, just paying people a ton more.
I think strategies like these are already at work when you look at the difference between poor vs rich nations—jobs in rich countries not only pay more but are also generally more automated, have better working conditions, etc. It’s funny to imagine how the future might be WAY further in the rich-world direction than even today’s rich world, since it seems so unbalanced to us (just like how paying 30% of GDP for healthcare would’ve seemed absurd to preindustrial / pre-Baumol-effect societies). But it’ll probably happen!