How is "Baumol effect" different from supply and demand for any limited resource?
Let's say that some new use for copper is discovered, that drastically increases the demand for copper. The cost of existing items that use copper is going to go up, even if those items are no more productive than they used to be, because the new items are now in high demand.
You can see this effect in real life with GPUs; it's much more expensive to buy a gaming graphics card today than it was a decade ago, because GPUs are in high demand for other applications.
So, increasing the productivity of labor in some sector is going to do the same thing supply and demand does to anything else -- the cost of labor goes up, but not as much as the productivity in that sector, and the producers of labor will enjoy higher demand.
>How is "Baumol effect" different from supply and demand for any limited resource?
It isn't, but nominal growth as a consequence of demand without increase in real output makes you no better off, that's the "fake" part. More practical example than graphics cards is houses. Large chunk of the US market, constantly goes up in price, but not because housing is becoming more productive. It's because money from other sectors spills over. Good for landlords, bad way to measure real economic activity. You'd be better off if you could roll houses from the conveyor belt and collapse prices.
Rising education prices don't reflect greater quality in education, faster teachers, or more graduates, i.e. output, which is what we ought to care about, but just higher spending funded by real gains in other sectors.
Let's say that some new use for copper is discovered, that drastically increases the demand for copper. The cost of existing items that use copper is going to go up, even if those items are no more productive than they used to be, because the new items are now in high demand.
You can see this effect in real life with GPUs; it's much more expensive to buy a gaming graphics card today than it was a decade ago, because GPUs are in high demand for other applications.
So, increasing the productivity of labor in some sector is going to do the same thing supply and demand does to anything else -- the cost of labor goes up, but not as much as the productivity in that sector, and the producers of labor will enjoy higher demand.