Bhaduri–Marglin meet Kaldor–Marx: wages, productivity and investment

Journal article (2017)

Authors

S.T.H. Storm Economics of Technology and Innovation -

C.W.M. Naastepad Economics of Technology and Innovation -

Research Group

Economics of Technology and Innovation () (TU Delft)

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Published Date

2017

Language

English

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Faculty

Technology, Policy and Management

Department

Values Technology and Innovation

Research Group

Economics of Technology and Innovation

Abstract

Higher real wages provide macroeconomic benefits in terms of increased demand if the economy is wage-led (as in most European economies) and of higher labour productivity growth and more rapid technological progress. Taking these benefits into account, we show that a wage-led economy becomes less strongly wage-led. The impact of higher real wage growth on employment growth becomes ambiguous. But for model parameter values which are realistic for the wage-led eurozone, higher real wages reduce employment growth. Contrariwise, real wage restraint in a weakly wage-led economy generates jobs – as recent European experience underscores. This internal contradiction in wage-led economies can be overcome if a high wage regime is complemented by supportive fiscal and monetary policies.