EconStor >
Westfälische Wilhelms-Universität Münster (WWU) >
Centrum für angewandte Wirtschaftsforschung Münster (CAWM), Universität Münster  >
CAWM Discussion Papers, Universität Münster  >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/51269
  
Title:The purchasing power argument: Could rising wages foster employment? PDF Logo
Authors:van Suntum, Ulrich
Issue Date:2008
Series/Report no.:CAWM discussion paper / Centrum für Angewandte Wirtschaftsforschung Münster 2
Abstract:The so-called purchasing power argument of wages (PPA), suggesting that rising wages could increase employment instead of reducing it, is examined within a general theoretical framework. While the demand side is modelled by means of a path-dependent Keynesian model with a Kaldorian saving function, a neoclassical production function is assumed on the supply side. It is shown that there is a core of truth in the PPA, if real wages are lower than marginal productivity of labour. While a temporary demand shock could indeed be overcome by rising wages, it is not possible, however, to outweigh a permanent slump in total demand by that way. Moreover, in contrast to conventional fiscal policy, wage rises according to the PPA imply both a rising price level and the danger of neoclassical unemployment. In an open economy, the relevance of the PPA is generally further reduced.
Document Type:Working Paper
Appears in Collections:CAWM Discussion Papers, Universität Münster

Files in This Item:
File Description SizeFormat
671586319.pdf108.24 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/51269

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.