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Saturday, 7 March 2015

Hence, managers' salaries are increased not due to labor productivity increases in the retail sector, but rather due to productivity and wage increases in other industries.

http://en.wikipedia.org/wiki/Baumol%27s_cost_disease

For instance, if the retail sector pays its managers 19th century style salaries, the managers may decide to quit and get a job at an automobile factory where salaries are commensurate to high labor productivity. Hence, managers' salaries are increased not due to labor productivity increases in the retail sector, but rather due to productivity and wage increases in other industries.

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