Does Czech Republic Suffer from Baumol´s Cost Disease?
Does Czech Republic Suffer from Baumol´s Cost Disease?

Author(s): Irena PALIČKOVÁ
Subject(s): National Economy, Labor relations, Transformation Period (1990 - 2010), Present Times (2010 - today), Public Finances
Published by: Masarykova univerzita nakladatelství
Keywords: Baumol´s cost disease; gross value added; productivity of labor; public expenditure; wage;
Summary/Abstract: This paper deals with Baumol´s cost disease theory. This theory is usually used to explain the different dynamics of some sectors of the economy, particularly public sector and to explain the growing share of the public sector in total resources. The aim of the paper is to verify the validity of Baumol´s theory on data from the Czech economy using the time series from 1995 – 2017. It was found that the Czech economy shows some symptoms of Baumol´s cost disease. These include, in particular, the growing share of the tertiary sector in total gross value added and employment, declining trend in labor productivity in the tertiary sector, declining expenditure on goods and rising spending on services spent by households. It was also confirmed that wage growth in the tertiary sector is determined by wage growth in the secondary sector, which is in line with Baumol´s theory. Although the share of the public sector in total resources in the Czech Republic is increasing, the share of public expenditure in GDP has a decreasing trend. This may be due, inter alia, to the faster growth rate of GDP recently.

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