The following points highlight the three important effects of wage cuts on effective demand. The effects are: 1. Wages and Investment 2. Wages and Consumption 3. Wages and the Rate of Interest. Effect of Wage Cuts # 1. Wages and Investment: If a general wage cut is likely to be repeated in future the expectation of possibility of further wage reduction [...]
The following points highlight the eight reasons for the advancement of flexible wage policy vis-à-vis flexible money policy. Some of the reasons are: 1. Double Dragon MEC 2. Slow and Wasteful Process 3. Leads to Price Instability 4. Discriminatory against Wage Groups 5. Increases the Burden of Debt and Others. Reason for Advancement # 1. Double Dragon MEC: If lowering [...]
Let us make an in-depth study of Keynes effect on wage flexibility and its limitations. Keynes Effect on Wage Reduction: It is maintained that a general wage cut will have the effect of reducing the wage bill, thereby leading to some reduction in prices and money incomes also. It will decrease the demand for cash for transactions and business purposes. [...]