[OPE-L:4902] Re: determination of real wages

Ajit Sinha (ecas@cc.newcastle.edu.au)
Fri, 2 May 1997 02:13:24 -0700 (PDT)

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Sorry about such a delayed response. It took a long time writing a response
to Gil on pen-l. And again, we all got to do some work to earn our wages.

At 12:43 PM 4/25/97 -0700, Duncan Foley wrote:

>It might help here to distinguish between the "real wage", that is, money
>wages divided by an index of the prices of wage goods actually consumed by
>workers, and the "product wage", money wages divided by the price of the
>products firms produce. In a slump most product prices (especially in
>non-wage goods industries) fall more sharply than money wages, so that the
>"product wage" actually rises. This is the type of scenario I had in mind
>in suggesting that high and rising wages drive technical change. I agree
>with you on the importance of periods of crisis (either economy-wide or in
>particular industries) in accelerating the competitive struggle and
>technical change.

This is an interesting idea. But I wonder how would it work? Let's suppose
we can distinguish between wage goods and capital goods. In your scenerio if
the real wages are falling, then the product wage in the wage good sector
must be falling, and so their profit must be rising. On the other hand, if
the product wage in the capital good sector is rising, it would mean two
things: the profit rate in the wage goods sector would be much higher than
the profit rate in the capital good sector; secondly, the terms of trade
between capital good and the wage good sector must change, worsening for the
capital good sector vis-a-vis the wage goods sector. Do we have imperical
evidence of this kind of changes? Moreover, is it possible to distinguish
capital good and wage good sectors neatly? And what about the reswitching
kind of problems? Could that arise here? Cheers, ajit sinha