Higher real wages provide macroeconomic benefits in terms of increased demand (if the economy is wage-led) and higher labour productivity growth and more rapid
technological progress. Taking these benefits into account, we show that a wage-led (profit-led) economy becomes less strongly wage-led (profit-led). The impact of higher wages on employment growth becomes ambiguous; but for realistic model parameter
values, higher real wages reduce employment growth in both wage-led and profit-led systems. Likewise, real wage restraint in a wage-led economy generates jobs-as recent Dutch experience underscores. This internal contradiction in wage-led economies can be overcome if a high wage regime is complemented by supportive fiscal and monetary policies.