The underlying productivity of the economy - a major source of growth - is a policy-influenced variable: we should consider real unit labour costs, not real wages.  

In countries which emphasise human capital formation, inter-estate conflicts tend to diminish if not evaporate. Economic policy disputes tend to reflect the presence or absence of social homogeneity: Australia has succeeded in part because of the (causal) relationship between civil discourse and 'rational' policy outcomes. (In other countries, inter-estate conflicts dominate: and this is reflected in the tone of the prevailing discourse).

RL


Once again I find myself replying in support of James Ahiakpor. 


In Australia where I was involved in our National Wage Cases on behalf of employers, there was an argument we continually had to deal with which came from the bench and not the unions. It was that raising wages would be good for the economy since it would force businesses to become more capital intensive. The assumption here was that the higher productivity forced on employers would lead to increases in the economy's ability to finance the higher real wage being imposed.


Marginal productivity theory is part of micro and will tell you what an individual firm will do in the face of higher real labour costs. It does not, however, tell you what will happen across the economy. Forcing real wages higher than the underlying productivity of the economy will support will drive some people out of work. This seems to me so obvious that both then and now it leaves me nonplussed to see it even mentioned, but then I, like James, think about these questions using classical forms of analysis. Unfortunately, like Hayek said, it still seems to be a completely new argument to most people.


The only difference between myself and James is that I would send you to Mill rather than Ricardo.