# Baumol's Cost Disease

Interactive two-sector model of unbalanced growth — why services keep getting more expensive while goods get cheaper

> Canonical page: https://elysiatools.com/en/visualizations/baumol-cost-disease

- **Category:** Math

## Overview

Interactive two-sector model of unbalanced productivity growth demonstrating why services keep getting more expensive while goods get cheaper. Based on Baumol & Bowen's 1966 model dividing the economy into a progressive sector (manufacturing, tech) with productivity growth gP and a stagnant sector (education, healthcare, arts) with growth gS. Wages rise at rate gP across both sectors because workers compete in the same labor market. Unit labor cost in the stagnant sector rises as e^(gP−gS)·t — exponentially — creating ever-widening cost divergence. Features four synchronized visualizations: (1) Unit labor cost comparison showing progressive vs stagnant sector divergence; (2) Productivity index trajectories; (3) Relative price ratio (service/good) with exponential growth; (4) Stacked area labor allocation showing structural shift toward services. Adjustable parameters: gP=0.5-8%, gS=0-4%, wage growth w=0.5-8%, simulation horizon 10-100 years, initial service labor share 10-80%. Statistics panel tracks cost gap multiplier, final service labor share, relative price ratio, and GDP per worker growth. Education covers the two-sector model, the string quartet example, structural shift mechanics, healthcare and education cost escalation, eldercare challenges, policy implications, and whether AI can cure cost disease. 8 languages (zh, en, es, fr, de, ru, pt, ja).

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