Friday, December 8, 2017

Baumol Effects are Different From Productivity Gains

Why so? Baumol effects act as another form of wealth capture (or at the very least, redistribution), for the wealth of existing local equilibrium patterns. Whereas, productivity gains translate into overall additional output, for existing equilibrium in aggregate. One way to think about this: Productivity is more about gains in output, than gains in wages - particularly when and where service markets have come to dominate mature economies.

Baumol effects in prosperous communities and regions can lead to higher wages for workers in general. However: since many of these workers aren't (yet) positioned to directly contribute to local wealth origination, their local access - regardless of skill level - could be priced out of reach. Especially so, if their input potential isn't connected to a primary market or wealth origination position.

These thoughts are my response to the local wage differentials which Arnold Kling addressed in a recent post, "Are locational wage differentials also productivity differentials?" One of the issues that was debated in comments, was whether specific wages were valued more highly, because of the level of wealth they were associated with.

However, mobility factors are also important, because when local employment at any skill level ends up defined as wealth capture or redistribution functions (for existing local equilibrium), local housing markets automatically act to reduce additional access. Otherwise, local coordination could take place at a reduced aggregate time price point, along a full range of skill levels (only remember for instance that supply side limits for physicians are based on urban - rather than rural - demand and associated constraint). Again, the Baumol effect expresses the time based coordination that appears locally "reasonable" among different skills groups, once the equilibrium dimensions of primary market formation are established.

Importantly, many forms of high skill employment also act as a form of wealth capture in local equilibrium, whereby local providers gain additional monetary advantages beyond what were already established via state and national levels. In other words, it's not just low skill workers who benefit from Baumol effects, but also high skill workers, whose "complete" monetary compensation takes place in a socially or politically sanctioned secondary market capacity.

Time arbitrage could reduce the necessity of today's excessive reliance on Baumol effects, as a form of economic access. One of the potential benefits of time arbitrage, is that by acting in a primary marketplace capacity, it wouldn't detract from the primary marketplace wealth distribution of local equilibrium which is already in effect.

New options for primary wealth formation are vitally important. Otherwise, it is becoming more difficult for citizens to access - particularly via social mobility - the already existing wealth of primary market points of origination. All the more so, when much of this general equilibrium capacity is already claimed via services dominant organizational  patterns. If time could purchase time, with skill and knowledge use as part of the package, knowledge use and service generation could begin to organize as new primary market capacity. Eventually entire attitudes toward skills potential on the part of all citizens, could change for the better.

Processes such as these could occur alongside existing prosperity, and in places where relatively little prosperity exists. Granted, few have taken seriously thus far, the concept of improving economic conditions where people already live. But when so many regions and mature economies are intent on closing their doors to those who still seek access, social mobility faces multiple constraints. A newly created economy at the margin, could be the best response.

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