The impact of increasing wages on employment is a subject of debate among economists. There are a few different perspectives and theories on this matter:
1. Classical economists argue that increasing wages can have negative effects on employment. According to the classical theory of labor market, an increase in wages above the equilibrium level (the wage rate that balances labor supply and demand) can lead to a decrease in the quantity of labor demanded by employers. This is because higher wages increase labor costs for firms, making it more expensive to hire workers. Consequently, firms may reduce their demand for labor, leading to unemployment or reduced hiring.
2. Keynesian economists, on the other hand, believe that increasing wages can have positive effects on employment. According to Keynesian theory, higher wages can stimulate aggregate demand and increase consumption. When workers earn more, they tend to spend more, which can boost economic activity and lead to increased demand for goods and services. This, in turn, can create job opportunities and reduce unemployment.
3. Some economists argue that the impact of wage increases on employment is context-dependent. In industries where labor costs are a significant portion of total costs, such as low-skilled labor-intensive industries, increasing wages may lead to reduced employment. In contrast, sectors with higher profit margins or where labor costs constitute a smaller share of total costs may be more able to absorb higher wages without significant job losses.
It is important to note that the actual impact of wage increases on employment is influenced by various factors, including the state of the economy, labor market conditions, productivity levels, worker skills, and the elasticity of labor demand. Consequently, the relationship between wage increases and employment is complex and does not have a one-size-fits-all answer.
In economics, what happens to employment if wage is increased for it's employees
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