Are Higher Wages Good for Business? An Assessment Under Alternative Innovation and Investment Scenarios

24 Pages Posted: 28 Jul 2017

See all articles by Alessandro Caiani

Alessandro Caiani

University of Pavia - Faculty of Economics

Alberto Russo

Università Politecnica delle Marche, Ancona - Department of Management

Mauro Gallegati

Università Politecnica delle Marche - Faculty of Economics

Date Written: January 31, 2017

Abstract

This paper aims at investigating the interplay between inequality, innovation dynamics, and investment behaviors in shaping the long-run patterns of development of a closed economy. By extending the analysis proposed in Caiani et al. (2017) we explore the effects of alternative wage regimes under different investment and technological change scenarios. Experiments results seem to de-emphasize the role of technological progress as a possible source of greater inequality. Overall, simulation results are consistent with the predominance of a wage-led growth regime in most of the scenarios analyzed: a faster growth of low and middle level workers’ wages, relative to managers’, generally exert beneficial effects on the economy and allows to counteract the labor-saving effects of technological progress. Furthermore, contrary to what is sometimes argued in the academic and political debate, a distribution more favorable to workers does not compromise firms’ profitability, but rather strengthen it creating a more favorable macroeconomic environment which encourages further innovations, stimulates investment, and sustains economic growth.

Suggested Citation

Caiani, Alessandro and Russo, Alberto and Gallegati, Mauro, Are Higher Wages Good for Business? An Assessment Under Alternative Innovation and Investment Scenarios (January 31, 2017). Available at SSRN: https://ssrn.com/abstract=3009593 or http://dx.doi.org/10.2139/ssrn.3009593

Alessandro Caiani (Contact Author)

University of Pavia - Faculty of Economics ( email )

Corso Strada Nuova, 65
27100 Pavia
Italy

Alberto Russo

Università Politecnica delle Marche, Ancona - Department of Management ( email )

Piazzale Martelli, 8
60121 Ancona
Italy

Mauro Gallegati

Università Politecnica delle Marche - Faculty of Economics ( email )

Piazzale Martelli, 8
60121 Ancona
Italy
++390712207188 (Phone)
++390712207102 (Fax)

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