Tim Worstall riffs on William Baumol to
fascinating effect:
One way of putting which is that increasing
labour productivity in services is more difficult than improving it
in manufacturing. Canonically, we cannot get a symphony orchestra
to be more productive by playing at twice the speed. So, ally this
with wages being determined by average productivity, we'll see the
amount we need to spend on labour to get services to rise against
the amount we need to spend on labour to get manufactures. Services
will become more expensive relative to manufactures over time.
However, this is not certain. A tendency,
yes, but not a certainty. For it is possible, through innovation,
to turn a service into, if not a manufacture, at least an automated
operation. Think replacing bank clerks with ATMs. Skilled typists
with dictation software. We can record the symphony once and play
it many times on a gramophone/Walkman/iPod.