WAGES UNDER FULL EMPLOYMENT
When there is no full employment, pressure for increase in wage rates may lead to some reshuffling of demand for labour and hence of employment without upsetting the price system. For example. if as a result of increase in wages, there is increase in propensity to
consume, level of investment remaining the same, output will increase to meet the increased demand and prices will not rise. If on the other hand, investment declines, the national income will decline and prices, too, will fall in line. Thus. the wage increase will not affect prices if the productive resources of the community are not fully employed so far. But under full employment. the conditions arc not likely to remain stable. Since the resources arc already fully employed, increase in wages will not be followed by increase in output; hence prices are bound to rise. The Government will make good by public investment any falling off of private investment which might have depressed prices -0, the existence of full employment strength ell bargaining power of labour. There can be no f· It unemployment as a result of rise in wages. This .1only provoke labour to amour for higher wages. ill,. employers can maintain or increase production t- Offering higher wages, since there is no unemployed bour to draw upon. The employers, therefore likely to combine to resist an all-round increase ‘in wages without their being able to get better supply of labour. But the labour will be in a stronger position .rnd will succeed in securing wage increases. However, since as explained above prices are likely to rise, their real wages are not likely to go up. Hence, under full employment, there will develop an inflationary spiral consequent on a rise in wages. ‘f1tis can be neutralized only by increase in the level of. labour productivity. Further, insistent demand for. higher wages may lead to the adoption of labour saving and other technical improvements. Persistent rise in prices, wages and profits will lead to transfer of purchasing power from the fixed incomes to workers and entrepreneurs which is quite desirable socially. Besides, inflationary situation and consequent instability, another consequence of permanent full employment is to rob the labour market of its flexibility.
Changes in the industrial structure can no longer be met by redistribution of unemployed labour but by transfer of labour from one sector to another, In the absence of unemployment, helping in the process of adjustment, some new and more positive methods will have to be devised and adopted to ensure flexibility of the economic system. A national wage policy will have to be adopted which can be easily done in a planned system.