Okishio's theorem

Statement

Japanese economist Nobuo Okishio argued in 1961, "if the newly introduced technique satisfies the cost criterion [i.e. if it reduces unit costs, given current prices] and the rate of real wage remains constant", then the rate of profit would increase.

Assuming constant real wages, technical change would lower the production cost per unit, thereby raising the innovator's rate of profit. The price of output would fall, and this would cause the other capitalists' costs to fall also. The new (equilibrium) rate of profit would therefore have to rise. By implication, the rate of profit could, in that case, fall if real wages rose in response to higher productivity, squeezing profits.

David Ricardo also claimed that a fall in the average rate of profit could ordinarily be brought about only by rising wages (one other scenario could be, that foreign competition would drive down the local market prices for outputs, causing falling profits).