Can an increase in salary result to a rejuvenated economy?

Question

Some believe that increasing wages dramatically can increase demand and therefore productivity resulting in a rejuvenated economy. What is your opinion?

(More people with money means more purchasing power, more demand for products means increase in employment.)

Answer 1

Increasing wages is always good for the economy. See this page and you will agree.

http://theincorrect.com/smallBuz/hand_ca...

There are companies that take advantage of hiring low wage employees, cost them less but at the same time they create a big hole in the country economy: education and health care for them and their dependents.

I think that a minimum wage increase is the solution make it at $17.00 per hour, but make employers paid for the education and the health care of their employees.

This is the only way to discourage employers from hiring low wage employees.  

Answer 2

There is some argument along these lines. Generally, when discussing minimum wage increases. The lower paid tend to have a higher propensity to spend (versus save). So increasing the minimum wage (or say, the wages of the lower paid workers) has a greater effect on increasing consumer demand than increasing the pay of the well-off.

In addition, as the cost of wages rises, the benefit of investment in productivity improving projects increases. You know, like bar scanners at the cashier. And productivity improvement is what drives GDP per capita growth.

The danger might be in increasing too much and/or too fast, which could lead to unemployment, decreasing employment levels, lower production, etc...

Answer 3

The money has to come from somewhere.  And it all depends on where the money for increased salaries comes from.

If the government just prints more money.  And everybody gets increased salaries.  Then this will only result in inflation.  And nobody will be able to buy any more than before.

If companies increase salaries by giving more of their profits to workers.  Then this might not be so good for the competitiveness of these companies in the Global Economy.  Because other companies with lower expenses will have more money for research and development and for investment in new manufacturing facilities.

But if companies increase salaries of common workers by taking away some of the multi-million dollar perks and bonuses from company executives.  Then this indeed might help the economy as you have suggested.

Because when the rich get paid their millions of dollars every year.  Then they spend only a small percentage of their income on consumption and invest the rest internationally, where they get the best interest payments and the best bang for their buck.  

If lower paid workers got this money instead.  Then they probably would've spent more of this money on consumption of goods.  And they probably would've spent it locally where they live.

Company executives often get paid several hundred times more than the common workers get paid.  And this grossly unequal distribution of income is a mal-investment as far as the economy is concerned.

Answer 4

Yes, and increasing the level of the fluid in a  thermometer can lead to warmer temperatures.  

Answer 5

Yes. Especially to fight inflation due to the rise in price of consumers' important resources.

Answer 6

Well, in short, no.  Increases in wages are also increases in costs for the company who is paying workers.  So the company must increase the cost of their goods in order to generate the revenue to pay the workers.  Thus, the amount of goods that the consumer can buy, (i.e., his real purchasing power) does not change in the long run.

Answer 7

The danger occurs when companies cannot afford to pay these high wages, and thus firms may well go bankrupt in tough economic periods. High wages bring up inflation.