Studies of Economic Change

Reversal of low wages

1. Labour market:
   The demand for labour is increased by low wages due to the market mechanisms of supply and demand. This leads to the creation of jobs. Full employment comes into effect if the wages are low enough.
2. Purchasing power:
   An increasing employment rate caused by the creation of jobs leads to a decline of the taxes and duties on wages. Consequently the purchasing power resp. domestic demand increases.
3. Idea of the evolution theory:
   Low wages are the reason for sloppiness and a lack of planning. A demotivated work force does not contribute to create innovations so that evolutionary processes do not come into effect.
4. "Law" of diminishing marginal utility:
   Low innovation rates obstruct the rationalisation of the processes which leads to inefficiency. By this way it is a success even to preserve the status quo.
5. Saturation of the markets:
   Without innovations new markets cannot be launched. The markets are saturated as the most people have already satisfied their demand for long-lasting assets.
6. Labour demand 2:
   As the markets are saturated the demand for goods and services decreases, even more because of a lack of innovations. Consequently the demand for labour increases.
7. Labour demand 1 plus labour demand 2:
   The significant increased labour demand (1) caused by low wages is compensated by the decreased labour demand (2) caused by the saturation of the markets.
8. Good demand 1 plus good demand 2:
   The decreased good demand (1) caused by the saturation of the market is compensated by the increased good demand (2) caused by the increasing purchasing power resp. domestic demand.
9. Inefficiency:
   Inefficiency arises if more people are needed to produce the same amount of goods and services.
10. Assumed solutions / misinterpretations:
    An increased demand for resources resp. labour can be deduced as a result of low wages. The economic measures which are usually introduced seem to be correct.
11. Mixing up:
    But in fact the increased demand for resources resp. labour (3) caused by a lack of innovations is mixed up with the increased demand for labour (1) caused by an increased purchasing power.