ARE HIGHER WAGES GOOD FOR BUSINESS? AN ASSESSMENT UNDER ALTERNATIVE INNOVATION AND INVESTMENT SCENARIOS

Alessandro Caiani, Alberto Russo and Mauro Gallegati

Macroeconomic Dynamics, 2020, vol. 24, issue 1, 191-230

Abstract: This paper aims at investigating the interplay between inequality, innovation dynamics, and investment behaviors in shaping the long-run patterns of growth of a closed economy. By extending the analysis proposed in Caiani et al. [(2018) Journal of Evolutionary Economics], we explore the effects of alternative wage regimes under different investment and technological change scenarios. Experimental 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, a distribution more favorable to workers does not compromise firms’ profitability, but rather strengthen it by creating a more favorable macroeconomic environment, which encourages further innovations, stimulates investment, and sustains economic growth.

Date: 2020
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Working Paper: Are higher wages good for business? An assessment under alternative innovation and investment scenarios (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:24:y:2020:i:1:p:191-230_10

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