The effect of a general change in wage rates upon employment and the value of the national income is decidedly uncertain because we are compelled to consider the results not only of a change of costs but also of a change in aggregate demand. While costs will presumably move in the same direction as wage rates, demand may move in the same direction but even further, or less far, or it may shift in the opposite direction.
In order to analyze the effects of a wage change upon demand, we must deal with its effects upon each of demand's four determinants: private investment, the consumption function, government purchases, and net exports. When we proceed along these lines, we find that our uncertainty is compounded. The answer seems to be extremely sensitive to the nature of the response of businessmen, the reactions of buyers, and the behavior of banks. This should not be surprising. The economy, as we have pointed out before, is not a machine. Its responses are the responses of human beings, and if they cannot be forecast or if they can be predicted only when all the circumstances are known, the effect on the economy of any change will be uncertain. [emphasis added]Lorie Tarshis, Modern Economics: An Introduction (Houghton Mifflin, 1967), p. 532-533
The contemporary push for austerity can be viewed as part of the attempt to reduce wages of workers in developed countries in order to increase the competitiveness of these countries in the global marketplace where labor is now fungible. As Tarshis points out, wage cost reduction may involve unforeseen consequences. Uncertainty often comes with surprises.