Macroeconomics of Unbalanced Growth
· The American Economic Review lists an issue month but no publication day; 15 June is used as a neutral sorting date.
Summary
Baumol divides the economy into sectors with fast and slow productivity growth. When wages rise together across them, unit costs increase in the slow-productivity sector; if society maintains its output, that sector absorbs more labor and can pull down aggregate productivity growth.
Why it matters
AI could widen similar relative-price differences by making automatable outputs cheaper. Spending and employment may then shift toward care, education, hospitality, craft, and other human-intensive services whose productivity grows more slowly or whose human involvement is part of the value.
What to keep in mind
Rising relative costs do not prove waste or mismanagement, and the model does not identify which services AI can transform. Demand determines whether slow-productivity activities expand, contract, or disappear, while the boundaries between sectors can change over time.