Abstract
“Baumol’s disease” refers to the phenomenon whereby labour flows from a high growth sector to a low growth sector, which eventually leads to a decline in regional economic growth. In this paper, we constructed an alternative model for evaluating Baumol’s disease, and conducted an empirical analysis of the industry sectors in Shenzhen and Hong Kong, China. The results showed that 1) from 2005 to 2016, labour flowed from the high growth sectors to the low growth sectors in both Shenzhen and Hong Kong, and the labour costs increased in the inflow sectors. 2) Shenzhen showed symptoms of the first stage of Baumol’s disease; that is, a change in the total factor production (TFP) growth rate led to a change in the employment structure. 3) Hong Kong showed symptoms of the second and third stages of Baumol’s disease, which meant that the change in the employment structure increased the labour costs of the inflow sector, which slowed the rate of regional economic growth. 4) The changes in the employment structure in Hong Kong indicated that the region had been infected with Baumol’s disease, while Shenzhen was at risk of being infected. The research can provide a method to judge Baumol’s disease in the different regions and provide suggestions for formulating the relevant policies.
Highlights
The results showed that 1) from 2005 to 2016, labour flowed from the high growth sectors to the low growth sectors in both Shenzhen and Hong Kong, and the labour costs increased in the inflow sectors
The labour force flowed from the sector with a high total factor productivity (TFP) growth rate to the sector with a low TFP growth rate, and the labour costs of the inflow sector increased more than those of the outflow sector
Some industries in Shenzhen, such as the industrial sector, had high TFP growth rates for all factors, a reduced dependence on labour and labour flowing to industries with a low TFP growth rate
Summary
He further found that changes in economic growth were related to the structure of employment. The input-output efficiency of the stagnant sector continues to decline, and eventually the national economic growth rate declines or even becomes zero. This phenomenon is known as Baumol’s disease
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