This paper aims at providing a reconstruction of Kaldor’s theory of the functioning of the labour market. In particular, it will be shown that Kaldor maintained that a high wage policy stimulates increases in labour productivity. This occurs both on the micro and on the macroeconomic plane. In the first case, he stresses that, in an economy populated by big firms operating in the manufacturing sector, high union density is associated with social conflict, which, in turn, generates wage increases and, via better labour relations, increases in labour productivity. On the macroeconomic plane, the same result applies via the operation of the ‘accelerator’ effect.