Reply to Kromphardt

In his reply to Jürgen Kromphardts arguments, Hans-Werner Sinn argues that Kromphardt's statements on the unit labour costs and the increase of unit profits are correct in themselves, but his conclusion that the higher unit profits point to an underutilised scope for wage increases is wrong. In his calculation of the unit labour costs and unit profits, wages are compared only with average labour productivity. If one wants to determine the contribution that labour alone makes to production, one must consider the marginal productivity of labour. This factor alone determines in a market economy how high wages can be, because only with compensation on the basis of the marginal product is the total value of production sufficient to pay all factors of production. Sinn also refuses to accept the argument that higher minimum wages increase the demand for goods. This argument overlooks the fact that income is not only wage income and that a wage increase does not expand the income of a national economy but at best distributes it differently. The workers would have more, the entrepreneurs less. That would mean that the workers would consume more, but entrepreneurs would limit their purchases of goods.