Abstract
The current global economic system is unsustainable, but transition to a more sustainable economy may cause or require a reduction in economic growth, particularly in high-income economies. The field of post-growth economics has arisen both to identify the challenges that may arise if economic growth cannot be sustained and to devise strategies for mitigating them.
One of those challenges is an economic effect known as Baumol’s cost disease. It suggests that low-labour productivity growth industries (collectively the ‘slow sector’) face rising costs due to increasing wage rates driven by high-labour productivity growth industries (collectively the ‘fast sector’). This is particularly problematic because the slow sector provides a source of low-carbon employment and therefore has an integral role in many visions of how a post-growth economy might operate. However, the literature has not yet attempted to quantify the likely scale of Baumol’s cost disease in a post-growth context or explored mitigation strategies. This dissertation seeks to address that research gap.
A three-stage research process is employed to assess whether Baumol’s cost disease presents a barrier to post-growth in high-income economies. First, the characteristics of the fast and slow sectors are explored through secondary data analysis, resulting in a set of five stylised facts. Second, the assumptions of Baumol’s cost disease model are reviewed and revised, resulting in an enhanced cost disease model with greater explanatory power. Third, the enhanced cost disease model is integrated into a stock-flow consistent modelling framework to estimate future price divergence and test mitigation policies. The research suggests that the cost disease, while still significant in a post-growth economy, is likely to be less problematic than experienced historically. It also identifies two clear mitigation strategies. Overall, this thesis concludes that Baumol’s cost disease may be overcome even in a post-growth economy through appropriate economic policy interventions.