Labour unions are pushing for wage increase but what is maximal theoretically possible wage increase here and now - without restructuring production, processes and without introduction of new technologies? As far as I can imagine then the decrease of dividend (profit) is the only possible source of wage increase. So - how much wages (in percentage terms) can theoretically be increased if profit is reduced to 0% from invested capital?

On can start the calculations with estimating the average wage share in the expenses of average company and go on...

Of course - another source of increase of lowest wages is the redistribution of the wages, lowering highest wages in enterprise and there can be great opportunities.

  • $\begingroup$ Profits as you use the word is just the return to capital, and forcing it to zero would seriously distort investment and savings decisions. Both wages and profits are prices of production factors, messing with them in a quantitatively important way will likely seriously affect production. $\endgroup$ – Tobias Jan 10 '17 at 18:20
  • $\begingroup$ My intention was simple - I wanted to establish argument that there can not be serious wage increase without structural reforms. To prove this argument I needed to establish the maximal bound that can be achieved by diminishing profits at all. I expect that such wage increase will be negligible - no more than 10% and that is why structural reforms and technology are necessary for wage increase. But I wanted to now the exact upper bound of possible wage increase by diminishing profits. Of course, I know that unprofitable company can not survive investment decisions. $\endgroup$ – TomR Jan 10 '17 at 18:38
  • 2
    $\begingroup$ Price changes are another possible funding method of wage increases, particularly for the self-employed $\endgroup$ – Henry Jan 10 '17 at 18:46
  • 2
    $\begingroup$ You use the word "prove" too freely. Your ceteris paribus is ill-defined, obviously a wage increase would have far reaching effects. As Henry notes price increases are pretty much unavoidable. $\endgroup$ – Giskard Jan 10 '17 at 19:59
  • 2
    $\begingroup$ The problem is that you've already reached your conclusion, and now you want to bend the science to support it. That's the opposite of the positive economics that this site exists for. $\endgroup$ – 410 gone Jan 11 '17 at 5:09

As others have noted, your "ceteris paribus" is not very well defined. If you only want to redistribute "here and now" all the profits to the workers, then you can use the "Kaldor fact" that the wage share is usually around 60-70% of GDP and thus profit share around 30-40%. This means that profit represents something like 40-60% of wages, if this is the figure you are looking for ?

You can of course find a more accurate figure concerning the country or sector you are interested in the national accounts.

I understand that you exclude price increase if you are interested in the real wage at the aggregate level (and probably in a closed economy).

Like Tobias, I think that the really interesting question is : what would be the short run, medium run and long run effects of such a "policy" ? In the short run it could maybe boost GDP through higher consumption demand. But sooner or later it seems unavoidable that you would meet insufficient investment (no one would invest to get zero profit back) and thus insufficient capital, except if you raise taxes and socialize investment.

Maybe you should have a look at the economic history of Yugoslavia, where workers were supposed to control the firms.

| improve this answer | |

Not the answer you're looking for? Browse other questions tagged or ask your own question.