Friday, August 15, 2008

Innovation is the only way to increase wages

Have you ever wondered how wages rise? I am sure everyone wants to know when their salaries are going to rise but its sometimes trickier to understand why we get a raise and why average salaries are going up from year to year, decade to decade.

When I say innovation is the only way to increase wages I mean that innovation is the only way average salary for the workers can increase. To be more precise I am talking about real increase in wages and not nominal increase in wages which compensates for the rising living costs due to inflation.

What does increase in wages imply ? An increase in average wages above inflation implies that we as an economy or society is creating more wealth and therefore can consume more. If we need to consume more we need to produce more. How does the same society or economy produce more with same number of workers? Innovation. We find new efficient ways to do the same work and produce more with less input. We discover new energy resources and this can enable us to consume more but that will not definitely give the kind of increase in production innovation can provide.

Scientific pursuit has given as machines, business processes, computers, factories, cell phones, cars etc which increase our productivity and hence more wages and has enabled as to consume more. Next time you worry about wages its a good idea to remember all those people who found innovative ways of completing our tasks with less human and mechanical energy. Long live innovation.

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