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Can somebody please explain the difference between the Baumol effect and the Balassa-Samuelson effect described in this lecture? It looks the same to me. Thank you.
I think the difference is that Baumol refers to different sectors in the same economy (why does a Norwegian barber salary rise when the Norweign oil sector becomes more efficient?) while Balassa is the same sector in different economies (why is a Norwegian barber paid more than a Mexian barber?).
With question #2 of the practice questions in mind, what are some factors that might result in a country having many middle class families with servants, while also having high labor productivity? For example, Hong Kong.
I haven't studied the issue, but high levels of income inequality in the population could possibly contribute. The prevailing wage for low skilled service would be within the means of the middle class. Hong Kong has one of the highest gini coefficients. https://www.cia.gov/library/publications/the-world-factbook/rankorder/21...
As the difference in haircut price is clear for me, I don't get the point why there is higher rate of employing house servants in Mexico than in Norway. I agree that price of house serving should be higher in the latter, but still the proportion between wages of upper mid-class (e.g. engineer in oil company) and wages of servant should be more or less the same in both countries (as the upper mid-class in Mexico is much less efficient in Mexico than in Norway), so it shouldn't determine differences in willingness to employ servants. Going this way of thinking we could say that probably people in Norway go to barber less often than in Mexico, what rather wouldn't be true. Could someone explain it to me? For me it's rather for cultural differences, but of course I might be wrong
I note that the World Bank estimates Norway's per capita GNI at $98,800 and Mexico's at $9,600. So the $5 haircut costs a Mexican the equivalent of $50 or more of his earning power. Pretty much comparable to Norway. With the disadvantage that what is left after this expenditure will not buy as many alternative goods as a Norwegian can afford. Which may lead more Mexicans than Norwegians to let their hair grow long or let their wives and girl friends cut it, reducing the market for Mexican barbers and (maybe) driving down prices. Sweden's GNI may be lower than Norway's. Do Norwegians plan trips to Stockholm to have their hair trimmed? Or doesn't that count as a test of the theory? The issue is not just alternatives but economic and political alternatives. Many barbers in the UK 60 years ago were refugees or migrants, often with more marketable skills they brought from home but could find no outlet to practice. Has someone compared the life history and career choices of Mexican barbers against those of Norwegian hair dressers?
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