Journal Article

Reconsidering the conventional wisdom on wage increases, the choice of technique and employment

Angelo Reati

in Cambridge Journal of Economics

Published on behalf of Cambridge Political Economy Society

Volume 26, issue 2, pages 179-200
Published in print March 2002 | ISSN: 0309-166X
Published online March 2002 | e-ISSN: 1464-3545 | DOI: http://dx.doi.org/10.1093/cje/26.2.179
Reconsidering the conventional wisdom on wage increases, the choice of technique and employment

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This paper provides a critical assessment of the neoclassical hypothesis that an increase in the relative price of labour with respect to the price of capital produces a substitution for labour by machinery, thus reducing employment. Several cases of non‐uniform wages—in terms of structure as well as in terms of changes—are examined, for both a closed and an open economy. The general conclusion is that, although we cannot rule out instances in which the neoclassical mechanism operates, a priori it is not possible to consider that this represents the general case.

Keywords: Choice of technique; Capital/labour substitution; Relative price of factors; Wages and employment

Journal Article.  0 words. 

Subjects: Economics ; Political Economy ; Economic Sociology

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