Unbalanced Growth and the Demand for Performing Arts: An Econometric Analysis

Abstract

The prevailing proposition in the economic analysis of the performing arts ever since the work of Baumol and Bowen [3; 4] has been the view that are to expect the financial strains which beset the performing arts to increase, chronically, with the passage of [3, 499]. The fundamental reasons refer to the application of Baumol's [1] unbalanced growth model to the case of live performing arts. The argument from the unbalanced growth model is that manufacturing productivity growth increases the general level of wages and so imposes cost pressure in such labour-intensive and limited productivity-increase areas as the performing arts. This finding, say Baumol and Bowen, can hardly reassuring to those to whom ready availability of the arts constitutes an important objective of society [3, 502]. But whether pessimism is justified is not at all clear. Economic prospects for the performing arts depend upon demand influences as well as cost factors, and there is no real analysis of demand in the unbalanced growth model. This omission is important because there are two highly relevant demand effects implied by the assumptions of the unbalanced growth model itself. Specifically, an increasing general wage level while putting cost pressure on the performing arts, also provides increased income from which increased arts expenditure can be made. This effect of wages on demand is neglected in the unbalanced growth model and yet it is potentially significant because this particular price change represents a change in income itself and is not just a change in the price of a consumer good which is a small part of the budget.' At the same time the wage effect on arts demand cannot be automatically presumed large, even with pure income effects substantial and performing arts not likely to be an inferior good. This is because, following Becker [6] and Linder [12], we must recognise that the increase in wages which is at the heart of the analysis through its effect on relative costs and on income, also implies a change in the price of consumption time and hence an incentive to shift away from time-intensive consumption activities.2 Since performing arts is an activity that is relatively time-intensive in consumption and which offers only limited opportunity for