Wage Hikes as Supply and Demand Shock

Jürgen Jerger and Jochen Michaelis ()

Metroeconomica, 2003, vol. 54, issue 4, 434-457

Abstract: Wage hikes affect production costs and hence are usually analysed as supply shocks. There is a long‐standing debate, however, about demand effects of wage variations. In this paper, we bring together these two arguments in a Kaldorian model with group‐specific saving rates and a production technology that allows for redistribution between workers and entrepreneurs following a wage hike. We thereby pinpoint the conditions under which (a) wage variations affect aggregate demand and (b) the positive demand effects of wage hikes may even overcompensate the negative supply effects on aggregate employment (‘purchasing power argument’). We conclude by noting that, whereas demand effects are very likely to occur, the conditions under which the purchasing power argument does indeed hold are very unrealistic.

Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Downloads: (external link)
https://doi.org/10.1111/1467-999X.00174

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:metroe:v:54:y:2003:i:4:p:434-457

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0026-1386

Access Statistics for this article

Metroeconomica is currently edited by Heinz D. Kurz and Neri Salvadori

More articles in Metroeconomica from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().