The cost disease blues–do the police suffer from Baumol's cost disease?

The purpose of this study is to analyze the growth of unit costs per output in the Finnish police force (2002–2015). Is it higher than the growth of prices in the Finnish economy in general; i.e. higher than the inflation rate? Cost disease theory suggests this to be the case. It says that all labor-intensive, slow-progressive industries suffer from relatively rapidly growing real unit costs and that policing is one among these industries.

The rates of growth of the division-specific unit costs of the police are compared to the inflation rate. Costs and prices are treated as indexed schedules, comparable to each other. The functional divisions under scrutiny are surveillance and emergency operations, criminal investigation, and permits and licenses. The period under analysis is 2002–2015.

The surveillance and emergency operations and criminal investigation divisions, but not the permits and licenses division, suffer from cost disease. Owing to the persistent digitalization efforts in permits and licenses, the physical productivity of the division has been growing at a rapid rate, and both the nominal and the real unit costs per output of the division have been decreasing over time.

Owing to data limitations, use of a proxy was needed to estimate one of the key variables of the study.

The policy significance of the research question is potentially very high. Prior to this study, there was a near total lack of empirical evidence in this area.