If innovation transforms the productivity of labour in manufacturing, then that will drive up salaries throughout the economy, making services more expensive. In 1995, in Germany, a flat-screen television cost about the same as a hip replacement. Fifteen years later, you could get ten flat-screen televisions for the cost of a hip replacement. The salaries of surgeons had increased because of the general increase in the productivity of the economy, but surgeons’ own productivity had not increased much, if at all. Thus, allowing innovation only in one sector can be a problem.
