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Appropriate Wage to Economies of Scale for Growth: An Exploratory Study on New Paradigm for Development

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  • Simarmata, Djamester A.

Abstract

Abstract 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 Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 41581.

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Date of creation: 25 Sep 2012
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Handle: RePEc:pra:mprapa:41581

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Keywords: economies of scale; increasing return to scale; labor wages; industry; interlinked; unit cost reduction; distribution of product;

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  1. David Colander, 2008. "Macroeconomic Policy And Collective Action," Middlebury College Working Paper Series 0332, Middlebury College, Department of Economics.
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  7. Seref Saygili, 1998. "Is the Efficiency Wage Hypothesis Valid for Developing Countries? Evidence from the Turkish Cement Industry," Studies in Economics 9810, Department of Economics, University of Kent.
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