What is the link, if any, between wages and technological progress in a capitalist economy? An article in this week’s The Economist magazine sheds some light on the issue. In particular, it considers the apparently lesser-studied effect that wages might have on productivity growth.
The reverse relationship, that productivity growth allows growth in wages, is studied more often. This has certain implications for economic policy. Boosting the supply-side determinants of innovation, such as education, and research and development, become important.
But what of the demand-side? The article mentioned above describes how some economic historians are engaged in a debate over the “high-wage hypothesis” put forward by Robert Allen, which he suggests helped drive industrialisation in Britain. Continue reading