Seth, part of the answer is that when capital can drive down wages it has less reason to develop new technologies. Raising the minimum wage and the wage level as a whole is the best way to accelerate such investment.
I believe that Richard Freeman will tell you that Europe has a higher rate of productivity growth in services because labor is hard to fire.
> Brad DeLong wrote:
> > >[Layoffs promote employment, says AG. "The second derivative of
> > >output per hour still appears to be positive." Next year in Jackson
> > >Hole!]
> > Well, Alan Greenspan said that employment-at-will promotes cost
> > savings from taking advantage of technological change, that faster
> > adoption of new technologies means higher productivity growth, that
> > higher productivity growth means faster warranted real wage growth,
> > that faster warranted real wage growth means that the sustainable
> > average unemployment rate that keeps actual real wage growth equal to
> > warranted real wage growth is lower...
> Hello, Brad. Welcome back from the heartland.
> So, if employment-at-will has enabled companies to take advantage of
> new technologies, why has there been no structural acceleration of
> productivity growth in 90 percent of the US economy, as Prof. Gordon tells
> us? And if employment-at-will does nothing to help nine tenths of American
> industry, why do we need it?
-- Michael Perelman Economics Department California State University Chico, CA 95929
Tel. 530-898-5321 E-Mail michael at ecst.csuchico.edu