ARE HIGHER WAGES GOOD FOR BUSINESS? AN ASSESSMENT UNDER ALTERNATIVE INNOVATION AND INVESTMENT SCENARIOS. (4th July 2018)

• Record Type: Journal Article
• Authors: Caiani, Alessandro; Russo, Alberto; Gallegati, Mauro
• Editors: Palestrini, Antonio
• Is Part Of: Macroeconomic dynamics. Volume 24:Number 1(2020)
• Page Start: 191
• Page End: 230
• Publication Date: 2018-07-04
• Subjects: Innovation, -- Investment, -- Inequality, -- Agent-Based Macroeconomics, -- Stock Flow Consistent Models; Macroeconomics -- Periodicals; 339.05
• DOI: 10.1017/S1365100518000299
• Languages: English
• ISSNs: 1365-1005

Abstract

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.