High wages, credit rationing and unemployment an a monetary economy


The aim of this paper is to analyse the theoretical links between a policy of high wages and the level of employment in the theoretical framework of the monetary theory of production (MTP). The ‘high wage effect’ will be assumed to be operating, i.e. a rise in wages via external intervention, by temporarily reducing the rate of profits, induces firms to react via technical advancement, which, in turn, increases the quantity and the quality of capital and hence the level of employment. Credit rationing will also be taken into consideration. Insofar as high wages increase profits, smaller firms facing credit rationing make lower profits than bigger firms, thus resulting in a potential process of raising the industrial concentration ratio. The bankruptcies of the smaller firms generate a greater demand to the benefit of the bigger firms, thus giving rise to a theoretical solution of the so-called paradox of profits.

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Keywords: monetary theory of production; credit rationing; wages; profits; employment

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