Examine consequences of increased  wages in an economy?

 Positive effects

• Increased labour productivity due to increased interest of workers for their job
• It reduces voluntary unemployment because workers are attracted by high wages
• It leads to market (aggregate demand) expansion due to increased purchasing power
• Leads increased labour efficiency due to increased interest in work
• Labour unrest is minimized
• Increase standards of living due to high income for workers
• Reduced brain drainage because workers are satisfied by the working conditions in their country
• Increased saving due to high income
• Increased government revenue through taxation such as from pay as you earn tax
• Increased equity in income distribution
• Increased development due to high demand and market

Negative effects

• It leads to inflation due to high amount of money in the circulation from wages
• It leads to high cost of production which discourages investment leading to unemployment
• High wages increase labour supply that could cause diminishing return since labour is increased on fixed production factors.
• It leads high government expenditure compelling government to borrow increasing government debt.
• Small firms may fail to pay workers leading to unemployment
• Can lead to income inequality between employed and non-employed peoples.