Ralf Einert

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Studies of Economic Change

Introduction (Labour Demand)

The analysis of this chapter about the impact of the wages on the demand for labour and goods supplements the analysis of chapter 6 about the feedback processes of high and low wages from another perspective. It will be shown that the results of both chapters are nearly the same.

The thesis of the traditional economic equilibrium theories that high wages contribute to an increase of the labour demand is expanded by considering the idea of the evolution theory and the "law" of diminishing marginal utility.

Evolutionary processes accelerate the rate of innovation. Innovations promote the creation of further needs and support rationalisation processes and efficiency which leads to cost savings. The additional demand of labour caused by innovations compensates the decreased purchasing power caused by an increased labour demand caused by high wages. As a result the demand for goods and services remains at the same level.

Looking at the demand for labour it is shown that decrease of the labour demand caused by high wages is compensated by the additional demand for labour caused by an increase of the demand for goods due to a higher innovation rate. The labour demand does only decrease slightly. As a result the constant remaining demand for goods and services meets a decreasing demand for labour.

Contrary the labour demand increases because of low wages. Therefore low wages lead to an increase of the demand for goods and services. But low wages cause as well sloppiness and a lack of planning so that the innovation rates declines with the effect that the demand for goods and services decreases. As we have seen in the opposite case of high wages the demand for goods remain constant while the labour demand increases. This means inefficiency.

And inefficiency jeopardises the international competitiveness within the world economy.

According to the results of the analysis about the feedback processes of high and low wages we can conclude:

1. High wages lead to maximum welfare in a leisure-oriented society.

2. Low wages lead to poverty connected with full employment at the best.

As consequence we will see that the wages per hours have to be increased and that the hours worked have to be reduced.