Grounds
1. Fall in effective demand:
According to Keynes wage is a double- edged sword. Money wage-cut reduces both the cost of production and income of the workers.
Fall in the income of workers, who have high propensity to consume would definitely reduce the ED. Thus, wage-cut will not increase employment.
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2. Impractical:
General wage-cut is not a practical preposition. In a democratic system trade unions will oppose strongly any cut in the money wage rate. If money wages are reduced, there will be industrial unrest and it would adversely affect the investment climate in the economy.
3. Real wages not fall:
The cut in money wages will not necessarily lead to fall in real wages. According to Keynes the prices may fall in the same proportion in which wages fall. It is so then real wage will remain unchanged and there will not be any change in cost of production.
4. Applicable to one industry:
Critics contend that employment can be increased by wage-cut only in one industry. If wages are reduced in one industry then there will be increase in the demand for the product of that industry as result of fall in price.
The reason is that there will not be fall in wages and income of workers employed in other industries.
But fall in wages throughout the economy will not increase employment opportunities. The classical economists committed the fallacy of applying the partial analysis to the whole economy.
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Thus, according to Keynes employment does not depend on wages, it depends on effective demand.