Appropriate Wage to Economies of Scale for Growth: An Exploratory Study on New Paradigm for Development
AbstractAbstract Since long the economies of scale is mainly acknowledged in microeconomics. Alas, in macroeconomics field, the prevailing principle is the constant return to scales by rejecting the economies of scale without justifiable reasoning. But fixed costs and indivisibilities are widely present in the economic activities. Urbanization takes benefits from economies of scale. Presently the idea of economies of scale in macroeconomics is in the ascent stage. The principle states that higher volume of production will have a declining unit cost. Higher production volume is assumed to respond to higher demand, which is enabled by higher labor wage. Raising labor wage rate does not necessarily increase unit cost of production. The wage could be a weighted wages in the sectors of the economy. It is expected that the rise in the labor wage should be less than the decrease of the unit cost, enabling higher sales. Aggregately it leads to a rise in the whole country production or Gross Domestic Product, entailing more jobs creation. A conclusion is that under appropriate conditions the increase in the labor wage rate will raise the GDP, associated with more jobs and better income distribution. This is a potential new developmental paradigm where the increase in the labor wage entails a rise in the GDP, providing more jobs and better distribution of income.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 41581.
Date of creation: 25 Sep 2012
Date of revision:
economies of scale; increasing return to scale; labor wages; industry; interlinked; unit cost reduction; distribution of product;
Find related papers by JEL classification:
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
- O14 - Economic Development, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-06 (All new papers)
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