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Are higher wages good for business? An assessment under alternative innovation and investment scenarios

Alessandro Caiani (), Alberto Russo and Mauro Gallegati ()

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Innovation; Investment; Inequality; Agent-Based Macroeconomics; Stock Flow Consistent Models (search for similar items in EconPapers)
JEL-codes: E22 E64 O41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hme, nep-ino, nep-mac, nep-pke and nep-tid
Date: 2017-01-31
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