Appropriate Wage to Economies of Scale for Growth: An Exploratory Study on New Paradigm for Development

Djamester Simarmata

MPRA Paper from University Library of Munich, Germany

Abstract: Abstract Since long the economies of scale is mainly acknowledged in microeconomics. Alas, in macroeconomics field, the prevailing principle is the constant return to scales by rejecting the economies of scale without justifiable reasoning. But fixed costs and indivisibilities are widely present in the economic activities. Urbanization takes benefits from economies of scale. Presently the idea of economies of scale in macroeconomics is in the ascent stage. The principle states that higher volume of production will have a declining unit cost. Higher production volume is assumed to respond to higher demand, which is enabled by higher labor wage. Raising labor wage rate does not necessarily increase unit cost of production. The wage could be a weighted wages in the sectors of the economy. It is expected that the rise in the labor wage should be less than the decrease of the unit cost, enabling higher sales. Aggregately it leads to a rise in the whole country production or Gross Domestic Product, entailing more jobs creation. A conclusion is that under appropriate conditions the increase in the labor wage rate will raise the GDP, associated with more jobs and better income distribution. This is a potential new developmental paradigm where the increase in the labor wage entails a rise in the GDP, providing more jobs and better distribution of income.

Keywords: economies of scale; increasing return to scale; labor wages; industry; interlinked; unit cost reduction; distribution of product (search for similar items in EconPapers)
JEL-codes: O11 O12 O14 O15 (search for similar items in EconPapers)
Date: 2012-09-25
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/41581/1/MPRA_paper_41581.pdf original version (application/pdf)

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:pra:mprapa:41581

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().