Worker incentives as a driver of endogenous technological progress

Abstract

Today, sustained welfare growth is explained by endogenous technological progress. However, existing endogenous technological progress models have a shortcoming: they do not consider mechanisms for incentivizing workers to foster innovation. The paper argues that for technological progress to become endogenous, workers, along with capital owners, must have incentives to foster innovation. The paper further argues that technological progress is driven by the distribution of profits in a way that motivates both capital owners and employees to foster innovation. To achieve this, the paper proposes linking wages to the company's profits, making workers, along with shareholders, co-owners of the profits.

Keywords: endogenous technological progress, worker incentives to foster innovation, profit-linked wages