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The aim of this paper is to address the conventional wisdom among policy makers as to the negative impact of higher real wages and full employment on economic stability and growth. Modern macroeconomic theory provides a different perspective where higher real wages generate growth and employment over time. This perspective is supported by the empirical evidence for OECD countries – although the derivation of policy implications must be adapted to the reality of the contemporary Spanish economy. The implications for policy are three: public service expansión of energy, housing and transport provision; long-term bank finance to support investment by medium- size firms; and progressive tax reform to fund new fiscal commitments for long-run growth while ensuring short-run stability.
