Blog | Economics | Film | Theatre

When Labour Costs Are Low

. 2 min read

In 1966 the economists William Baumol and William Bowen published an influential book in which they argued that wages in the performing arts tend to rise in line with the general wage level, even though there are no associated productivity gains, a phenomenon for which they coined the term cost disease. It takes the same number of musicians and the same amount of time to perform a Beethoven string quartet today as when it was originally composed, yet musicians' wages have increased greatly since the early 19th century.

In many manufacturing jobs the total factor productivity has gone up because of advances in technology. In dance and the performing arts the total factor productivity equals the labour productivity. What is "consumed" is essentially labour. Even a farmer may earn a higher income because improved irrigation techniques and the use of fertilizers result in increasing crop yields, although the harvest may also take longer.

A quick look at the casts of Bollywood movies provides some cross-country evidence for Baumol and Bowen's hypothesis. I just happened upon the Badi Mushkil scene from Lajja (2001). And of course Dola Re Dola from Devdas is a classic in this respect.

In the 1930s, during the golden age of the musical, Hollywood movies used to be like that as well. It's not that today's movies are cheaper in relative terms, the budget is spent differently. A lot of money now goes into post-production. It makes for different, but not necessarily better movies. Some recent movies also feature mass scenes, but there is a big difference with Hollywood musicals and Bollywood dance numbers. Adding a few dozen extras is easy, but to get them to synchronize their movements you have to rehearse, which takes time depending on the complexity of the movements involved and the duration of the sequence.

As a matter of fact, rehearsing with 60 or 80 dancers at 800 euro (or dollar) per week plus travel expenses might be viable for a big budget movie, because of the economies of scale in the actual distribution of the movie. Once the movie has been made the costs are fixed. In the performing arts the labour costs continue with every performance. The total revenue equals the number of seats times the ticket price times the number of performances. Since the number of seats in a theatre is fixed and there are no economies of scale as in rock concerts an increase in revenue to make up for rising labour costs can only come from an increase in ticket prices.

According to Baumol and Bowen due to rising labour costs performing arts companies would be forced to reduce the number of performers and raise ticket prices. However, an overall rise in disposable income may offset the decrease in demand for tickets, predicted by economic theory. Still, you don't see the kind of large dance casts in Europe or the U.S. as you see in Bollywood movies. The Cirque du Soleil has large casts of performers and technicians, but they do two shows per night and perform 5 or 6 days per week, at least at their resident shows in Las Vegas AND they charge 160 USD per ticket, which is double the price of first category tickets for dance companies such as Batsheva and The Forsythe Company when they perform at the Brooklyn Academy of Music in New York. And the Paris Opera Ballet currently employs 154 dancers. But then again, they've got a very big state budget. So overall I think the hypothesis by Baumol and Bowen holds.