ABSTRACT
The heaviest emphasis by overinvestment theorists is usually on the threat to profits from rising wage costs as the economy nears full employment. In wage negotiations employers use this argument to prove that higher wages will lead to less investment and production, and so to unemployment. In addition to a considerable long-run level of unemployment, the capitalist system periodically is subject to the peculiar disease of mass unemployment and depression. Unemployment, of course, rises because it is a lagged negative function of production. The notion of solving unemployment by cutting wages conveniently ignores the fact that lower wages mean less demand for consumer goods, which makes it harder for capitalists to realize their profits. Contrary to the reserve army theory, the wage share and unemployment move in the same direction in most of the business cycle. They do, however, move in opposite directions before the cycle peak.
