The scope of our consumption determines whether we are able to consume in the first place. If we don’t have money, we can’t consume. Through our consumption we establish continuous demand for goods and services, which are then produced at a high quantity. This demand determines how many citizens will have a job in manufacturing or services.
Since the price of goods heavily depends on the quantity that is sold, the production costs are very important for companies’ strategies on what to produce and how to produce it. Production costs to a large extent depend on wages that a company has to pay its employees for producing the goods.
If there is a continuously high demand for a high-priced good, companies usually pay high wages to many employees. If demand is low, then companies will invest less in production. This means that they will either have a limited number of highly-paid jobs, with demand for very high productivity, or many jobs at comparatively low wages.
However, wages have an impact on sales. If only a limited number of people in a society earn high wages, the number of high-priced goods is naturally limited as well. If sales numbers are not very promising companies will likely not invest in high-wage production. This will results in a continuously low number of citizens that can afford high-priced goods, which would justify higher wages.
To overcome the deadlock and make more people able to consume, companies and citizens alike need to invest: more companies need to employ at high wages and more citizens need to purchase goods of high-wage companies. If this doesn’t happen wealth can only develop to a certain extent.
There is a direct correlation between wages on the one hand and sales volume and sales price on the other. This can have positive or negative effects. If all citizens receive high wages but don’t buy the goods that are being produced under such conditions then at some point high wages will become unbearable for companies. They will try to limit production costs by limiting the number of employees, in particular of those that earn high wages. Should this not establish a reasonable income-cost ratio, companies will outsource production, to domestic suppliers or to companies in other countries where workers accept lower wages. They will still sell their goods here. But the local population will not be included in the distribution of production profits. Many EU Member States have seen this development in the past decades. It is one of the primary reasons for high unemployment figures in the EU, with more than 25 million EU citizens seeking a job.
EU Member States, too, can influence the ability of their citizens to consume goods that were made on their territory. States are employers for hundreds of thousands of citizens and they too can pay high or low wages. And states are also the distributors of tax that is collected from their citizens. A large part of tax income is distributed to unemployed citizens, be they retired people, unemployed or recipients of social security payments. Here, too, states can decide whether or not they want their dependents to be able to consume goods that are made here.
For employees in the high-wage nations of the EU it is essential that there is a sufficient number of citizens that can afford high-priced made in EU goods, due to their high income. And we, the citizens, must see to it that we purchase sufficient numbers of the goods our own economy produces. Otherwise, our wages will become unaffordable for employers.