Artificially High Wages in Early Pigou’s Economics

This study aimed to review early Pigou’s theory of artificially high wages based on the framework of the interaction between the specific industry in which the high wages are set and the general labor market. This paper raises two points. First, Pigou noted that the increase in the total welfare of society through income redistribution and improvement in the quality of workers were the merits of artificially high wages. He also sought to refute the common criticism against artificially high wages from the perspective that high wages have a positive effect on the whole society. Second, Pigou focused on the emergence of unemployment caused by artificially high wages. The argument was characterized by high wages having different effects on workers who do not earn such wages and on the general labor market, as opposed to benefiting the workers who enjoy them. Furthermore, in Wealth and Welfare, Pigou’s analysis of high wages, which relied on differential or non-differential wages, labor demand elasticity, and methods of labor engagement, was developed, while the difficulties associated with the introduction of high wages was clearly expressed in terms of possible evasion. In summary, Pigou positively assessed Marshall’s basic idea that high wages would improve the quality of the workers. However, Pigou believed that awarding high wages to workers in a particular industry would be very difficult in a practical situation given the interaction between the industry in question and the general labor market.