No full-text available
To read the full-text of this research,
you can request a copy directly from the authors.
Is Aggregate Demand Wage-led or Profit-led? A Global Model
Abstract
There has been a significant decline in the wage share in both the developed and developing world which has coincided with the introduction of neoliberal policy reforms since the 1980s. The promise of these reforms was to stimulate private investment and exports, which was expected in turn to generate higher growth, more jobs and trickledown effects. The reasons for this fall have recently been the subject of a growing amount of literature that has tried to pin down the effects of technology, globalization, and changes in labour market institutions (see, inter alia, IMF, 2007; OECD, 2007; EC, 2007; ILO/IILS, 2011; Rodrik, 1997; Diwan, 2001; Harrison, 2002; Onaran, 2009; Rodriguez and Jayadev, 2010; Stockhammer, 2011). This chapter offers a theoretical and empirical assessment of the effects of this pro-capital redistribution of income on growth at both national and global levels.
... The former literature usually finds evidence of profit-led demand (a rise in the profit share positively impacts on aggregate demand) and a profitsqueeze in distribution in the short run (Barbosa-Filho and Taylor, 2006;Kiefer and Rada, 2014;Carvalho and Rezai, 2016). The latter approach usually finds evidence of wage-led demand in large and relatively more closed economies, whilst the results for smaller and more open economies tend to indicate a profit-led demand regime (Stockhammer et al., 2008;Hein and Vogel, 2007;Onaran and Galanis, 2012;Lavoie and Stockhammer, 2013;Onaran and Obst, 2016;Stockhammer and Wildauer, 2015). ...
... The existing evidence regarding such an additional relationship is mostly related to price competitiveness. In general, the results indicate that an increase in the wage share (or in the unit labor cost) negatively impacts on the balance of trade (net exports) in developed and developing countries (Naastepad and Storm, 2006;Hein and Vogel, 2007;Stockhammer et al., 2008;Onaran and Galanis, 2012;Stockhammer and Wildauer, 2015;Blecker et al., 2022). However, considerably much less attention has been given in the literature to the functional distribution of income as a non-price structural factor affecting the balance of trade. ...
... Naastepad and Storm (2006) and Stockhammer et al. (2008) provide evidence supporting the positive (negative) effect of an increase in the wage share on aggregate consumption (investment) in developed countries (although the effect on investment is frequently small or even statistically non-significant). Considering some G-20 developing countries, Onaran and Galanis (2012) also find evidence that aggregate consumption (investment) is positively (negatively) affected by a rise in the wage share, but the latter effect seems to more than offset the former in most of those economies. ...
... Such approach would be supported by Keynesian/post-Keynesian economics, which focuses on improving the demand side to stimulate the economy (Keynes 1936). Keynesian economists make a strong case for wage-led economic recoveries (Onaran and Galanis 2012), in which ensuring that people are paid at least a LW could play an important part. ...
... These, they argue, are high enough numbers to urge caution about a statutory LW. Even if in the long-term it may be desirable to have the LW as a mandatory minimum wage (Waltman 2004), something that would also make economic sense from a post-Keynesian perspective (Onaran and Galanis 2012), there are transitional costs to the economy and society to consider, and the ethical issue arises whether this will be a price worth paying. ...
We analyze the impact of outsourcing on the well‐being of internal call center employees in the U.S. telecommunications industry. Our findings draw on mixed‐methods data. The qualitative findings suggest that internal employees experienced escalating job demands connected to errors by third‐party call center vendors and their employees due to additional work and intensified customer frustrations. SEM results show sequential mediation between the time internal employees spent correcting vendor errors, customer mistreatment of employees, emotional exhaustion, job satisfaction, and absenteeism. Employee autonomy over customer‐related decisions appeared to help workers manage these job demands and their effects on well‐being.
... A large empirical literature (e.g. Onaran and Galanis, 2013;Onaran and Obst, 2015) finds a positive relationship between the share of wages in national income and economic activity in many countries and regions, which are therefore classified as 'wage-led'. A similar channel also exists in the model which we employ, and indeed we find that a persistent change in functional distribution away from wage income as a consequence of an energy price shock gives rise to a slower post-shock recovery. ...
... There is growing evidence globally that while labour's share of income is falling, income inequality, profit share, and ownership concentration are all rising (Singer 2020). Increasing market power has increased economic inequality by suppressing wages while boosting corporate profits (Onaran & Galanis 2013;Naidu et al. 2018). The analysis of the wage share in industrial income distribution, thus, becomes an essential means to understand the implication of monopoly capitalism on the working class. ...
The present study is an attempt to examine the development of monopoly capitalism in India through industry-level analysis of the change in the degree of monopoly and distribution of income. To this end, the Kaleckian approach has been applied to all the 56 three-digit Indian organised manufacturing industries listed in the Annual Survey of Industries covering the period 1998-2018. The data have been examined at four levels: the aggregate sectoral level, the aggregate of the top 25 per cent industries, the aggregate of the top 10 per cent and disaggregate analysis of the top 6 industries. The study finds strong evidence of the growth of monopoly power in the manufacturing sector with the rising growth rate of the economy, indicating the rise of monopoly capitalism in India. It also brings out the dominance of the top 25 and top 10 per cent (in terms of gross value added [GVA] share and employment) manufacturing industries) in the determination of aggregate monopoly power and the wage share in the organised manufacturing sector. The study finds that under monopoly capitalism, the rise of profits of the larger industries in India's organised manufacturing sector primarily comes from the deduction of wages of production workers and the flow of surplus from smaller to larger industries. Keywords Degree of monopoly · Kalecki · Labour share · Capitalist share · India · Monopoly Capitalism JEL Classification D3 · E11 · L12 · L6 Since its formal integration with the accumulation logic of global capitalism in 1991, the Indian economy has been changing rapidly. In the last three decades, several
... Inequality exacerbates credit bubbles and raises the risk of financial crises [49]. Inequality affects growth stability, with debt regimes from financialization expected to lead to weak long-term growth and heightened inequality, ending in economic instability [50]. Increasing inequality is linked to higher financial risks when credit expansion coincides with it, potentially leading to unsustainable economic growth and crises. ...
Financial development and deregulation have historically driven economic growth but have also exacerbated inequality. The relaxation of financial regulations preceding the 2008–2009 crisis is a prime example of this phenomenon. While initially promoting growth, it exacerbated both labor and profit inequalities. The crisis laid bare vulnerabilities in the financial systems of Eurozone EZ countries, resulting in economic recession and worsening inequality domestically and internationally. This chapter first reviews the theoretical underpinnings of the impact of financialization on growth and inequality, followed by an examination of the components of inequality, including factor, labor, profit, and unemployment indices. Central to our discussion is the imperative of reducing inequality, considered fundamental for fostering growth, welfare, and social cohesion. The empirical investigation is conducted to assess the determinants of total inequality before and after the 2008–2009 financial crisis, with EZ countries categorized into three groups: Northern EZ countries, Southern EZ countries, and Newcomers. Conclusions and policy implications underscore the necessity of regulating the financial system to prevent crises, maintaining low unemployment rates, and ensuring equitable increases in income for both skilled and unskilled workers as for capital owners.
... Dynan et al., 2004), and that the difference between the two savings ratios is significant (say, in the range of 30%-50%; see, e.g. Hein & Ochsen, 2003;Onaran & Galanis, 2012). In actual fact, some aspects of assumptions (vii), (viii) and (ix) are to some extent interrelated: for instance, as Levy (1982) remarks, on the basis of Schydlowsky's (1978) input-output formulation, "while [the] matrix [of total input-output coefficients] is a technological datum, the same does not hold for [the matrices of domestic and imported input-output coefficients]. ...
This paper builds and explores in detail a post-Keynesian–Sraffian one-country model of effective demand, which, on the one hand, extends the Kurz multiplier model to open–with state-economies of single production and, on the other hand, is applicable to data from the National Input–Output Tables of the World Input–Output Database. Thus, it estimates the net output, import and employment matrix demand multipliers for the world’s ten largest economies. The overall findings provide general support for and new insights into Sraffian theoretical and policy arguments: (i) the multiplier effects depend heavily on the physical composition of autonomous demand; (ii) the incremental share of wages in net national income can move in either direction with an increase in the savings ratios out of wages and profits and/or the corresponding direct tax rates; (iii) there is, in general, no one-to-one correspondence between alternative tax–transfer policies and their multiplier effects; and (iv) there is not necessarily an inverse relationship between the overall level of the profit rate and the multiplier effects or the wage share.
... The difference between the two is in fact a matter of degree: we find that there has been divergence over the entire period we analyse, and (close to) delinking in the last two decades (see Section 6). In what follows, we use the term 'decoupling' or 'divergence' as general terms, while we leave to the estimated coefficients to indicate the degree of divergence versus delinking as defined above. 2 Changes in the labour share may affect aggregate demand-both its composition and its evolution (Onaran and Galanis, 2013;Hein, 2015)-and the composition of the tax base. 3 It is well recognized that the 'typical worker' pay climbed together with productivity from the post-war period until the late 1970s, whereas they decoupled later. ...
During the last decades, mature economies have tended to experience a divergence between labour compensation and productivity growth. Interpretations of this trend are still under debate. Our article aims at contributing to a sound, evidence-based understanding. We estimate the magnitude of this decoupling for a panel of 22 high-income economies (1970-2018) and empirically assess the role of a variety of factors. After providing evidence that casts doubt on the impact of technical change, we adopt a 'political economy' standpoint and focus on the structural effects on real compensation growth of several macroeconomic and institutional dimensions. Our findings indicate that labour market slack and the weakening of pro-labour institutions have acted as important wage-squeezing factors. A negative effect is also found for trade openness and international capital mobility, while most financialization variables are not significant. The robustness of our results is supported by a range of tests and specifications.
... As a result, the ratio of capital to labor supply in productivity units, υ ≡ K/Na, remains constant, so that the employment rate, e = L X X K K N = uυ, always varies in the same direction as capacity utilization; if the latter becomes stationary in the medium run when the balanced growth path is reached, so does the former. 6 4 Given such a linear relationship, the polluter-pay principle, and the assumption that the propensity to consume out of wages is greater than the propensity to consume out of profits (an assumption with robust empirical support; see, e.g., Onaran and Galanis, 2013), the further simplifying assumption that capitalists save all their profit income has no qualitative bearing on the main results of our model. 5 Of course, assumptions alternative to those made in this model could result in capacity utilization being profit-led. ...
There is evidence that pollution concentration impacts negatively on labor productivity, which has implications for the well-know Kaldor-Verdoorn law. While the growth rate of labor productivity varies positively with the growth rate of output, the growth rate of pollution concentration also varies positively with the latter. An increase in pollution concentration leading to environmental degradation might thus offset the productivity-enhancing effect of output growth. This paper explores such a double-edged sword feature of output growth in a demand-led macrodynamic framework having pollution concentration as a further influence on the conflict over the functional distribution of income. The stability of the environment-economy system hinges on how output growth varies with the functional distribution of income. When output growth is wage-led, the balanced growth path is unstable. When output growth is profit-led, stability is possible, but the system undergoes fluctuations as it converges to the balanced growth path.
... Onaran, Stockhammer, and Grafl (2011) find that the USA economy is in a moderately wage-led growth regime. Onaran and Galanis (2013) find that all 16 major developed and developing countries of the G20 sample (Argentina, Australia, Canada, China, France, Germany, India, Italy, Japan, Mexico, South Africa, Turkey, the European Union, the UK, the US, and the Republic of Korea) are in a domestic wage-led demand regime. Of these, under open economy consideration, only Argentina, Australia, Canada, China, India, Mexico, and South Africa exhibit a profit-led demand regime. ...
... Since the early 1990s, the country has displayed an almost chronic commercial surplus ( Figure 5.4). In spite of the growing importance and economic dependence of the exporting sector, most empirical works suggest that the demand regime is still wage-led (Hein & Vogel, 2008;Onaran & Galanis, 2011;Stockhammer et al., 2011), i.e. the GDP shows a positive response to increases in the wage share. This result is quite problematic, since the macroeconomic management during the last 25 years has been oriented toward the control of the real effective exchange rate (REER) through the restraint of nominal wages and the implementation of a conservative fiscal policy, thus repressing domestic demand (mainly the private consumption demand), and with net exports being the main driver of economic growth. ...
... In parallel with the explanations framed within the traditional neoclassical approach and the straitjacket of factor substitution and decreasing factor demand curves, the literature develops other lines of inquiry based on a 'political economy' approach to income distribution (among others, Stockhammer, 2013Stockhammer, , 2017 1 Changes in income shares deserve attention for two main reasons: on the one side, the wage income share may relate to the personal income distribution, as demonstrated in the literature (Atkinson, 2009;Glyn, 2009;Jacobson and Occhino, 2012); on the other, for macroeconomic stability, changes in the labor share affect the aggregate demand-both its composition and its evolution (Onaran and Galanis, 2013;Hein, 2015)-and the composition of the tax base. 2 On the contrary, in some mature economies (among which are France, Italy and Germany to a lesser extent), the adjusted labor share exhibits an upward trend after 2008-2009. This is ascribed principally to a slowdown in productivity. ...
The drop in the labor share experienced in high-income countries in the last three to four decades testifies to a general divergence in the growth rates of labor productivity and average wages. In this respect, we first quantify the magnitude of this decoupling; second, we inquire into the factors that prevented wage growth from keeping pace with productivity. We endorse a ‘political economy’ approach – a line of inquiry which has been recently fueled and followed by the post-Keynesian literature – focusing on the effects on wage dynamics of some macroeconomic and institutional factors in a panel of 22 OECD economies for the post-1970 period. We find that, on average and over the cycle, only 50% of increased productivity went to workers. Our empirics indicate that labor market slack and the weakening of pro-labor institutions have acted as wage-squeezing factors; a negative effect is also found for globalization, specifically for trade openness and international capital mobility. Other aspects of the process of financialization, such as market capitalization and the dynamics of the real interest rate, seem not to have exerted a substantial impact on real wage growth.
... Onaran, Stockhammer, and Grafl (2011) find that the USA economy is in a moderately wage-led growth regime. Onaran and Galanis (2013) find that all 16 major developed and developing countries of the G20 sample (Argentina, Australia, Canada, China, France, Germany, India, Italy, Japan, Mexico, South Africa, Turkey, the European Union, the UK, the US, and the Republic of Korea) are in a domestic wage-led demand regime. Of these, under open economy consideration, only Argentina, Australia, Canada, China, India, Mexico, and South Africa exhibit a profit-led demand regime. ...
In a post-Keynesian growth model with positive saving propensity out of wages, this paper analyses the implication of different kinds of government expenditures on aggregate demand and economic growth. We distinguish between government expenditure on consumption and investment. The basic idea is that certain kinds of government investment expenditure influences labour productivity. In a formal model, we incorporate this idea by assuming labour productivity as an increasing function of government investment expenditure. When the economy is in a profit-led demand regime, under the balanced budget assumption, we show that a shift in government expenditure from consumption to investment leads to an unambiguous rise in both aggregate demand and economic growth. However, the result is ambiguous in the wage-led demand regime. Once the balanced budget assumption is dropped, while in a wage-led demand regime a rise in government investment expenditure may decrease aggregate demand and growth, it unambiguously raises both aggregate demand and growth in a profit-led demand regime. On the other hand, in the absence of a balanced budget assumption, a rise in government consumption expenditure has a positive effect in both regimes. We also show that allowing the government to run a deficit and incur debt does not necessarily lead to the public debt rising without bounds.
... Negatively sloped IS demand regimes are named "profit-led," whereas positively sloped ones are "wage-led." Effective demand can be considered as "wage-led" when positive effects of higher wage shares on consumption exceeds negative effects on investment and trade balances, and as "profit led" when investment is more responsive to profits (Blecker 2016a;Onaran and Galanis 2013). Kiefer and Rada (2015) investigate 13 OECD countries based on Goodwin-Cycles and conclude that these countries are weakly profit-led. ...
This paper presents a post Keynesian open economy model to investigate the possible effects of capital flows on capacity utilization and distribution in financially controlled and financially liberalized small open economies. In financially controlled regimes, capital flows increase labor productivity through spillover effects. The increase in labor productivity leads to a decrease in wage share of workers from national income which leads to lower prices. The lower price level in turn results in real exchange rate depreciation and provides higher trade balances through enhanced export competitiveness. In financially liberalized regimes, capital flows result in real exchange rate appreciation, which decreases the cost of foreign borrowing, foreign intermediate goods, and lower wage shares. In line with all these developments, capacity utilization increases, but trade balances deteriorate due to diminished export competitiveness.
After illustrating the main macroeconomic features of the NAIRU and some paradoxes arising from its empirical estimates, the paper assesses the literature on hysteresis: how, on the one hand, it casts doubts on the existence of a NAIRU and, on the other hand, how it has been dealt with in mainstream literature as a ‘distortion’ mostly occurring, asymmetrically, after recessions. By contrast, it is argued that the analytical and empirical foundations of the tendency of the economy to return to the NAIRU are analytically unsound and empirically weak: market forces or monetary policy cannot be relied on bringing aggregate demand in line with (potential) aggregate supply. This opens the way to a profoundly different perspective on the working of the economy, whereby aggregate supply adjusts to demand both in the short and in the medium to long run. On these premises, conflicting claims inflation is maintained to be consistent with the evidence of a long-run, non-linear downward sloping Phillips curve both in nominal and real wages. Some features of the analysis presented here had been advanced already by Godley and Tobin in the 1970s.
The neoliberal reforms since the 1980s have resulted in rapid globalization paralleled by worsening income distribution. In this paper, I first show that most countries worldwide (58 of 81) have experienced a decline in the labor share of income, or the wage share, during 1950-2019. Second, I estimate the demand and distributive regimes from 81-country panel data based on the neo-Goodwinian model. At the global level, the short-run estimation shows that the distributive regime appears to be Marxian/profit-squeeze and the demand regime exhibits profit-led. I further separate the estimation into two groups: advanced and developing countries. The estimation still confirms the profit-led/profit-squeeze regimes in both groups, even though the demand and distributive regimes are stronger in advanced economies. In the long run, the results reveal a global race to the bottom: a decline in the long-run wage share. Neither positive nor negative gain is founded on capacity utilization in advanced and developing countries.
This article delves into the economic landscape of advanced countries in our current era, delineating the defining features and policies that shape it. Beginning with an examination of financial capitalism, we explore its close relationship with labour market reforms aimed at diminishing job security, weakening unions, and reducing workers' bargaining power. Moreover, we highlight the concurrent reduction of the welfare state's role, which, unless mitigated by addressing demand crises, poses challenges in financing workers' consumption. The intertwining dynamics of technological advancements are also scrutinised, with a focus on the associated risks and opportunities. Finally, we draw policy implications from these analyses, offering insights into navigating the complex economic terrain of the present era.
This paper aims to answer two questions: (1) Does overtourism incline countries to favorise the capital asset holder instead of workers in income distribution? (2) Does income inequality come hand in hand with overtourism? Employing Kaldor's theory of income distribution, this study adapts its theoretical framework to assess countries with a specialization in tourism. The analysis encompasses data from 115 developed countries over the period of 2000 to 2019. A Regression Discontinuity Design (RDD) methodology is utilized for the empirical investigation, categorizing key variables based on the exposure of a country's unit to a tourism-focused developmental strategy. The study reveals that adopting overtourism as a developmental strategy has led to increased inequality, characterized by a rising capital share and a declining labor share over time. Evidence supporting these findings is presented through both parametric and non-parametric Regression Discontinuity Design (RDD) analyses. Robustness checks and placebo tests corroborate these results.
This paper investigates the demand regime of the Greek economy for the period 1960–2017, using a Bhaduri/Marglin (1990) type macroeconomic demand-led model and applying the empirical methodology developed in Stockhammer et al. (2009). The analysis finds that Greece is another European economy with a wage-led demand regime, both domestically and as an open economy. Moreover, the analysis shows that the results are robust across different sample sizes, for the period 1960–2017, and the two sub-periods 1960–1989 and 1990–2017.
Badanie ma na celu ustalenie, czy polska gospodarka działa w ramach reżimu opartego na płacach czy na zyskach. Analizując to, jak zmiany w rozkładzie dochodów wpływają na konsumpcję, inwestycje oraz eksport netto, można wnioskować o naturze reżimu gospodarczego Polski, co ułatwia formułowanie polityk opartych na dowodach, a także wspiera zrównoważony rozwój gospodarczy kraju. Długoterminowy wpływ zwiększenia udziału zysków na wzrost gospodarczy okazuje się istotnie negatywny, dając podstawy do wniosku, że Polska gospodarka w okresie 2001–2022 funkcjonowała w reżimie opartym na płacach. Szacunek całkowitego wpływu krańcowego zwiększenia udziału zysków na produkt, z uwzględnieniem mechanizmów mnożnikowych, wynosi –0,22.
This paper examines the relationship between aggregate demand and the wage share in the US using a vector autoregression methodology. It finds evidence of Goodwin-cycle effects – that is, profit-led demand and a profit-squeeze effect – in baseline estimates using assumptions traditionally used in the aggregative literature. However, estimates that examine the relationship between demand and the two components of the wage share (the real wage rate and labor productivity) indicate that these results are highly sensitive to ordering restrictions relating demand and labor productivity and that different types of shocks to the wage share may have differing effects on demand. The results suggest two possible interpretations of the initial Goodwin-cycle finding, depending on the assumptions used to identify the demand–productivity relationship. One suggests that the initial estimates reflect a causal relationship in which the effects are driven by a positive effect of productivity on demand and a negative effect of demand on productivity. The other suggests that the initial Goodwin-cycle finding may be spurious, as it interprets contemporaneous pro-cyclical variation in labor productivity as a profit-led demand effect, thereby obscuring an underlying wage-led relationship.
Progressive policy proposals influenced by post-Keynesian economics emphasise the use of fiscal policy and income redistribution to maintain aggregate demand at levels which achieve full employment. Given persistent evidence of weak demand, excess capacity and unemployment in rich economies since around 1980, expansion of demand would have been appropriate over much of this period. Tighter supply constraints – both short-run constraints due to disruption caused by climate change and geopolitical tensions, and longer-run constraints due to absolute carbon budgets – impose additional challenges in designing policy. In order to increase investment sufficiently to achieve net zero goals, constraints on consumption may be required. Such constraints would weaken the multiplier mechanisms emphasised by post-Keynesian analysis, implying lower growth and higher public debt stocks. Traditional progressive policy proposals will need updating to reflect these constraints. New institutional arrangements will be required to implement updated policy packages.
Purpose
The first objective of this article is to analyse the reasons to pursue inclusive growth, that is economic growth accompanied by a reduction of social inequalities in different dimensions. The second objective of the article is to develop a systematised framework to understand the different channels and enablers by which heritage can contribute to inclusive growth through a review of specialised literature.
Design/methodology/approach
The methodology of this article is based on an exhaustive review of existing literature around models of economic development and their ability to decrease social inequalities. It critically reviews theoretical and empirical studies on existing economic approaches and links them with the heritage policy field.
Findings
The article finds that countries should pursue inclusive development since it is a fundamental condition for social cohesion, trust and society's overall well-being and because it enables economic growth to be sustainable through time. It also identifies four channels through which heritage can contribute to inclusive development: in its public good dimension, in its capacity to equalise opportunities, in its ability to reduce social, educational and health disparities and in its capacity to decrease spatial income inequalities through regeneration processes.
Research limitations/implications
The framework, that is developed to categorise the different channels and enablers through which heritage could contribute to inclusive growth, is not empirically tested. Further research could approach this by estimating a difference in difference model. However, data limitations could limit this objective in the short-term.
Originality/value
Its originality relies in the development of a conceptual framework that is aimed at shaping heritage policies that target, at the same time, the reduction of inequalities and economic growth.
This paper contributes to the growth models debate by expanding the concept of growth drivers to emerging capitalist economies (ECEs). Conceptually, the paper synthesizes growth drivers with a growth model operationalization based on GDP growth contributions and financial sector balances. Drawing on post-Keynesian and structuralist economics, as well as, empirical studies, seven growth drivers for ECEs are reviewed: income distribution, price and non-price competitiveness, commodity prices, private debt, foreign direct investment (FDI) and fiscal policy. Descriptive data for these drivers are presented for 19 regionally grouped ECEs between 2000 and 2019. On average, Asian ECEs exhibit higher growth rates, stable real exchange rates, high and increasing non-price competitiveness and high private debt levels. Latin American countries show comparatively lower growth rates, high but decreasing income inequality, unstable exchange rates and relatively expansionary fiscal policy after the Global Financial Crisis (GFC). Central and Eastern European countries generally display medium to high growth rates, lower income inequality, high non-price competitiveness, a substantial FDI stock and, after the GFC, real depreciations and contractionary fiscal policy. The assessment of cross-country growth drivers via bivariate coefficients reveals limited robust results, except for non-price competitiveness, which emerges as a significant driver. Additionally, we find indications that private debt and expansionary fiscal policy became more important for growth in ECEs after the GFC. This is in line with the emergence of domestic demand- and private debt-led growth models in ECEs following the GFC in the course of private deleveraging and austerity policies in developed capitalist economies.
Since the beginning of the 1980s, reforms of the labour market have been at the centre of political and economic debate in the European Union. While these reforms were implemented mainly with the aim of improving employment performance by removing structural issues, they may also have had non-secondary and non-negligible effects on the share of national income received by workers. The aim of this paper is to study the effects of the changes in the labour market regulation index (LMRI) on the wage share in twelve Eurozone countries between 2000 and 2019. The empirical results — obtained from the estimation of an error correction model (ECM) — show that: (i) an inverse relation exists between LMRI as a whole and adjusted wage share in the short run only; (ii) the reduction of the adjusted wage share depends mainly on two specific measures of flexibility: a more decentralized level of bargaining (the effects of which are significant in both long- and short-run periods) and a relaxation of the hiring and firing regulations (the effects of which are significant only in the short run); (iii) the economic growth and unemployment rate also contribute to the decline of the adjusted wage share.
In a stock‐flow consistent neo‐Kaleckian macro‐model, along with worker households' debt dynamics, we incorporate distributional dynamics and examine the dynamic stability of the economy in the long‐run. Both wage‐led and profit‐led but a debt‐burdened demand and growth regimes are possible in the short‐run and the long‐run. We show that the interaction between the debt and distributional dynamics may lead to instability in the economy. We find that a rise in the targeted profit share of firms or an increase in the bargaining power of firms vis‐à‐vis workers may cause a deterioration in functional income distribution. We show that a fall in animal spirits leads to a decline in functional income distribution vis‐à‐vis workers and may also lead to a fall in capital accumulation rate in the long‐run.
Covid-19 pandemisinin tüm dünyaya yayılması sonucunda tüm sektörler ekonomik olarak bu krizden etkilenmiştir. Bu krizden etkilen önemli sektörlerden birisi de otomotiv sektörü olmuştur. Bu bağlamda bu çalışma Covid-19 döneminde (2020-2021) ve öncesinde (2018-2019) BİST’te faaliyet gösteren otomotiv firmalarının finansal performanslarını analiz etmeyi amaçlamıştır. Bu noktadan hareketle firmaların finansal performanslarını analiz etmede çok kriterli karar verme yöntemlerinden birisi olan CRITIC tabanlı CoCoSo yöntemi kullanılmıştır. CRITIC yöntemiyle yapılan analiz sonucunda en fazla önem ağırlığına sahip kriter, özsermaye devir hızı rasyosu olurken; en az önem ağırlığına sahip kriter ise ekonomik rantabilite rasyosu olmuştur. CoCoSo yöntemiyle yapılan analiz sonucunda ise finansal performans sıralamasında FMİZP ve FROTO firmaları ilk iki sırayı alırken KATMR ve BALAT firmaları ise son sıralarda yer almışlardır.
The Sar-Cov-2 pandemic that began in 2019 has significantly affected the global economy and, in particular, those of African countries. This paper analyzes possible intervention channels by African states to put their economies back on a sustainable growth path once the health crisis is under control. The paper proposes workable macroeconomic channels for these countries’ recovery from post-pandemic periods by using historical data to conduct empirical analyses. The paper employs World Bank data and ILOSTAT for 54 African countries within the period 1990–2018. We use a post-Keynesian framework and the difference and system generalized method-of-moments to show that wages drive African economic dynamics in the short run. This is particularly true for Sub-Saharan African countries. In addition, foreign output, proxied by European Union output, has a positive and significant impact on Sub-Saharan African economies in the short and long run. The results highlight strategic policy measures for recovering African economies, including improving wages and deepening international economic relations, particularly with the Eurozone countries.
This paper investigates non-cyclical, short-run relationships between income distribution and the components of aggregate demand in the US from 1963–2016. Previous studies using this ‘structural’ methodology have typically found that demand is wage-led in most large, advanced economies. However, these studies have been criticised for treating total output and the wage share as exogenous, potentially leading to simultaneity bias. This paper corrects for such possible bias as well as common shocks to the equations by using systems GMM. Surprisingly, these estimates imply that private-sector aggregate demand is more, rather than less, wage-led (or in some cases, less profit-led) compared with OLS estimates of identically specified models. This paper is also the first to provide separate estimates of non-residential and residential investment functions and to distinguish the effects of shocks to different underlying determinants of the wage share (unit labour costs and firms’ monopoly power), finding that these differ qualitatively.
In line with the orientation of EU economic policy, the Spanish government has favoured a strategy of internal devaluation as a way of adjusting price levels within the currency union and offsetting the fall in competitiveness accumulated over time, as evidenced by the persistent trade deficit. The results of comparative empirical studies indicate that the internal wage devaluation applied in Spain as a crisis exit strategy (in the form of labour reforms and, in general, measures to contain labour costs) does not seem to have attained the desired goals in terms of reducing the relative prices of exports and consolidating a model of growth based on external demand. Indeed, the estimates drawn up show that tailwinds – the depreciation of the euro as a result of the measures taken by the ECB, greater economic activity by trading partners and the fall in the price of oil – exercised a decisive influence in the trends followed by the prices of exports and the balance of trade during the period of crisis management in Spain.
This paper deals with the Secular Stagnation in productivity growth that marks the US economy since the end of the Golden Age. I contribute to the understanding of this phenomenon proposing a theoretical and empirical analysis. On the theoretical side, I develop an agent-based, stock-flow consistent model to investigate the deep relationship between functional income distribution and productivity through the channel of innovation. Findings suggest that the continuous shift of income from wages to profits may have resulted in a smaller incentive to invest on R&D, with the corresponding decline in productivity growth that characterizes US Secular Stagnation. In this respect, a social compromise between workers and capitalists in terms of higher wages helps foster innovation and economic growth, but it does not necessarily entail significant improvements in terms of income concentration, because of higher unemployment rates. Additionally, I question the neoclassical belief on the negative interest-elasticity of investments, since decreases in the rate of interest are not associated with increases in capital accumulation, but they decrease income inequality through higher employment rates. On the empirical side, this paper presents a panel cointegration analysis on US manufacturing industries for the period 1958–2011. If, on the one hand, the linkage between R&D and wages is corroborated, on the other hand, I find the lack of any long-run relationship between innovative search and the rate of interest, which does not necessarily conflict with theoretical predictions.
This paper discusses the possibility of estimating a long run relationship between income distribution and growth. As emphasized by Blecker, the neo-Kaleckian empirical literature has focused on the estimation of a short run relationship. This paper contributes to the debate by looking at a long term relationship through the use of filtering methods. We first estimate the long run component (or “trend” component) of the relevant variables using various types of filters. Second, we run causality tests and frequentist estimations to test for the relationship between the estimated trend components. We find that there is little difference between the results of each filter and there is empirical evidence for long run relationship between the rate of capacity utilization and income distribution. We also find that there is some empirical evidence for long run wage-led growth.
This chapter analyzes the underlying causes of the long-term stagnation of the Mexican economy, especially since the country restored conventional macroeconomic stability in the late 1990s. First, the chapter documents the disappointing growth of Mexico compared to other middle-income countries. The chapter then considers, but ultimately rejects, neoclassical explanations that focus on supply side obstacles and incentives. Especially, the high degree of dualism (informalization) of the Mexican economy is a consequence, rather than an explanation, of the slow growth of the formal sector. Finally, the chapter demonstrates how a combination of distributional inequity, external constraints, and misguided fiscal and monetary policies has operated to impose severe demand-side constraints on Mexico's growth. These factors in turn emanate from the country's adoption of a neoliberal policy paradigm in the 1980s and the unequal way in which Mexico has been integrated into the regional and global economies since that time.
The aim of this paper is to investigate how different degrees of sophistication in agents’ behavioral rules may affect individual and macroeconomic performances. In particular, we analyze the effects of introducing into an agent-based macro model firms that are able to formulate effective sales forecasts by using simple machine learning algorithms. These techniques are able to provide predictions that are unbiased and present a certain degree of accuracy, especially in the case of a genetic algorithm. We observe that machine learning allows firms to increase profits, though this result in a declining wage share and a smaller long-run growth rate. Moreover, the predictive methods are able to formulate expectations that remain unbiased when shocks are not massive, thus providing firms with forecasting capabilities that to a certain extent may be consistent with the Lucas Critique.
This paper tests Granger causality in quantiles between the wage share and capacity utilization in twelve developed countries using annual data ranging from 1960 to 2019. Instead of focusing only on the conditional mean, we test for Granger causality in the entire conditional distribution of the variables of interest. This method detects Granger causal dynamic relations in both the mean and the whole conditional distribution using bootstrap confidence intervals and the Wald test. Our results indicate that capacity utilization positively affects the wage share in eight out of the twelve sample countries. This Granger causal effect is strong and heterogeneous across quantiles, being larger for more extreme quantiles. Capacity utilization positively Granger causes the wage share in all conditional quantiles in the U.S., Sweden, and Italy. Meanwhile, the wage share negatively Granger causes capacity utilization in all conditional quantiles in Spain and in some quantiles above the median in Italy.
This study builds a North–South trade and growth model and investigates the effect of a change in each country’s income distribution on economic growth in both countries. The North is assumed to be a demand-led Kalecki-type economy with the markup pricing rule and the principle of effective demand, while the South is a supply-led Lewis-type economy with surplus labor and hence, the real wage is fixed. Furthermore, it is assumed that international competition influences the markup rate of North firms. The following four main results are obtained. First, in the short-run equilibrium, an increase in the bargaining power of capitalists of the North increases (decreases) the economic growth rate of the North if the North exhibits profit-led (wage-led) growth. Such an increase in the bargaining power of capitalists of the North necessarily decreases the economic growth rate of the South. Second, in the short-run equilibrium, an increase in the profit share of the South decreases (increases) the economic growth rate of the North if the North exhibits profit-led (wage-led) growth. Such an increase in the profit share of the South can either increase or decrease the economic growth rate of the South. Third, in the long-run equilibrium, an increase in the bargaining power of capitalists of the North decreases (increases) the economic growth rates of the North and the South if the North exhibits wage-led (profit-led) growth in the short-run equilibrium. Fourth, in the long-run equilibrium, an increase in the profit share of the South increases (decreases) the economic growth rates of the North and the South if the North exhibits wage-led (profit-led) growth in the short-run equilibrium.
This paper attempts to contribute to the ongoing literature that relates consumer debt to income inequality. The most prevalent interpretation of consumer debt is working households’ emulation of upper classes’ consumption patterns or horizontal consumption emulation reminiscent of ‘keeping up with the Joneses’. This paper suggests an alternative link between consumer debt and income inequality: working households borrow to sustain their established standard of living. Furthermore, the borrowing function used allows the examination of alternative working households’ borrowing behaviours. The findings suggest that massive borrowing triggered by income inequality can be sustainable under high rates of economic growth. Also, cross-scenario comparisons show that different borrowing behaviours have both quantitative and qualitative effects on the short and the long run, in the growth regime and in macroeconomic stability.
In this study, by utilizing quarterly data for the UK economy over the period 1985Q1 to 2019Q4, we explore a) the determinants of the profit rate in the context of the Marxian tradition and b) by using a probabilistic framework of analysis, we investigate the factors associated with the occurrences of UK recessions. The evidence indicates that the wage share of income is inversely related to the profit rate whilst the capacity utilization, the capacity-to-capital ratio and the monetary expression of labour time have all a positive impact on the profit rate. Additional evidence suggests that the probability of a recession decreases with higher profitability, whilst at the same time the wage-led hypothesis is also supported. Finally, the impact of interest rates on the likelihood of UK’s economic recessions is found to be insignificant.
RESUMO: O objetivo do artigo é analisar o regime de crescimento brasileiro no período 2000-2015, levando-se em consideração a distribuição pessoal e funcional da renda. Em termos teóricos, seguimos o modelo neokaleckiano aumentado proposto por Palley (2016). Em termos empíricos, utiliza-se a metodologia de vetores autorregressivos. Os resultados mostram os efeitos positivos da redução da desigualdade em termos dos rendimentos do trabalho e da desigualdade interpessoal da renda sobre a acumulação de capital e a demanda agregada. A partir dos resultados, argumentamos em prol da adoção de um modelo de crescimento que seja capaz de conciliar distribuição de renda e políticas de incentivo às exportações.
This paper presents a novel empirical investigation into demand and distribution dynamics using a heterogeneous panel structural vector autoregression model for a panel of 10 emerging economies during the 1970–2017 period. Following the Kaleckian tradition, the theoretical analysis is based on a dynamic macro model where distributive shares and labor productivity are determined endogenously by introducing conflicting-claims theory of inflation and Kaldor–Verdoorn effects. The paper indicates profit-led demand regime only in the short run and profit-squeeze effects when allowing for the contemporaneous effect of labor share on capacity utilization and capital accumulation. However, after incorporating the contemporaneous effect of demand on labor share and thus controlling for the short-term effect of pro-cyclical labor productivity on labor share, the results provide evidence for wage-led demand and wage-squeeze effects. These results underline how the importance of addressing endogeneity issues when estimating demand and distribution regimes and how different assumptions about the interactions among demand, distribution, and labor productivity result in diverse findings.
This paper aims to review the relationship between crisis theories in Mainstream economics, Post-Keynesian economics, Marxian economics and income inequality, especially within the context of great recession. Emergence of the great recession and its devastating effects, not only on financial sectors likewise on real economy brought discussions of origin of crises back in fashion. Inequality was accepted as an important factor contributing to great recession and it is brought to the fore in crisis theories due to sharply increased income inequality before the great recession even though there is disagreement amongst different schools of thought on causes of crisis.
The focus of this contribution is on macroeconomic and financial policies. It relies on fiscal, monetary and financial stability policies, which aim to develop sustainable and resilient market economies. This contribution relies on our macroeconomic model, which accounts for the financial sector, and a proper role for governments and thereby fiscal policy. It also accounts for distributional effects. The macroeconomic model upon which we rely to account for the relevant macroeconomic policies, enables our contribution to deal properly with fiscal, monetary and financial stability policies, and also distributional aspects. Another proposal, and most important, is that these policies should be properly coordinated to achieve sustainable and resilient economies. Our contribution begins with a relevant introduction, and proceeds to highlight our theoretical model. The economic policies of our model are then discussed, along with the next section that deals with the coordination of these policies. Our final section summarizes and concludes.
In a post-Keynesian growth model with two types of workers, an attempt is taken to understand changes in financial behaviour and income distribution and their macroeconomic causes and consequences. For a relatively strong speed of adjustment in the financial market and a relatively weak reserve army effect, a stable steady state is achieved in the wage-led demand regime. An endogenous and perpetual business cycles may emerge in both the regimes. While in some scenario, a contraction in the wage gap between white and blue-collar employments can make the steady state unstable, in a profit-led demand regime, a rise in the wage gap can destabilize the economy. A more regulated financial market is desirable for ensuring the economy’s stability in a weak wage-led or a weak profit-led demand regime. A more regulated labour market and a rise in unionization are desirable as these can mitigate income inequality.
Germany is no longer characterized by the combination of encompassing coordinated institutions that promote strong macroeconomic results and relatively uniform working conditions for the entire economy. During the 90s, acute economic problems in the form of high unemployment and eroded economic competitiveness led to in-depth institutional reforms in the fields of labour market and industrial relations. This process of institutional change has been shaped by the interests of the exporting manufacturing sector. As a result, a dual economy emerged: while firms in advanced manufacturing industries undertook flexible restructuring processes in cooperation with its core workforce using traditional institutions; institutional change, sharp wage-cutting policies and the expansion of flexible forms of employment were concentrated on a periphery of consumer and business services. Certainly, these reforms have served to meet the goals of full employment and the recovery of the trade surplus, and helped Germany to successfully manage the shock of the Great recession in comparison with neighbouring economies. Nonetheless, the achievement of these objectives was at the cost of growing inequality in employment conditions and the stagnation in domestic demand and working hours, shaping the new nature of German capitalism.
This work aims to investigate the effect of changes in functional income distribution on growth in Brazil from 1952 to 2017. Following the neo-Kaleckian and Supermultiplier growth and distribution theories, it is possible to obtain two types of such effects. First, a level effect, predicted by both models, establishes a direct relationship of the wage share on the level of output through changes in the components of aggregate demand. Secondly, a growth effect occurs only in the neo-Kaleckian models and is the causal relationship between the wage share and output growth through the rate of capital accumulation. We analyzed the presence of these two effects in the empirical literature and found no evidence of a long run growth regime through capital accumulation as would be expected in the neo-Kaleckian model. However, we find empirical evidence that investment is an induced component of demand as is expected in the Supermultiplier model.
A plethora of literature documents the worldwide decline in the labor income share since the 1980s, but relatively little attention is given to the effect of changes in the labor income share on macroeconomic fluctuations. Utilizing a sign-restricted VAR model, this paper studies how changes in the labor income share affect business cycle fluctuations for the US and Korea. In line with the existing literature, I identify two structural shocks impinging on the labor income share—the factor share and technology shocks, which result in different short-run dynamics in the labor income share and real wages. Empirical analyses reveal that, for both countries, the macroeconomic consequences of a rising labor income share hinge upon how real wages respond. In the short run, a higher labor income share accompanied by rising real wages tends to be expansionary, but an increase in the labor income share coinciding with falling real wages results in lower GDP.
Using input–output data and Sraffian frameworks, this chapter provides empirical estimations of demand multipliers and the medium- and long-run effects of wage and currency devaluations on international price competitiveness and income distribution for Eurozone economies. The findings (i) reveal certain differentiated socio-technical production conditions in the economies under consideration (i.e. Greece, Italy, Spain, and the Eurozone as a whole); (ii) seem to be in accordance with the observed deep Southern Eurozone recession; (iii) cast doubt on the “horizontal” policy measures implemented in the post-2010 Eurozone economy; and (iv) provide an alternative framework for formulating well-targeted effective demand management and structural policy programs.
This paper develops a stylized short-run neo-Kaleckian model incorporating personal income inequality and income taxes. The main goal is to investigate how changes in income taxes and personal income distribution affect output growth. The theoretical discussion of the stylized model is then empirically assessed using data for Italy retrieved from the Survey of Household Income and Wealth published by the Bank of Italy. The empirical analysis confirms both the heterogeneity of the propensities to consume of Italian households and the dominance of absolute income effects in the Italian consumer behavior that assures the negative trade-off between inequality and aggregate demand. More specifically, it is shown that, overall, Italians are still income constrained, not allowing for a compensation of the demand-depressing effects of raising inequality via debt and wealth-based consumption. Likewise, it is argued that decreasing personal income inequality via progressive income tax reforms would have positive effects on aggregate demand, utilization, and growth.
The paper investigates how the distribution of income between labor and capital is affected by financial crises. Using an international panel-data of the share of labor in GDP, three sets of empirical regularities emerge: (i) a tendency for the labor share to fall sharply during a financial crisis, recovering only partially in subsequent years; (ii) the decline during a crisis can be partly explained by the extent of leverage in the country, the nature of its financial structure, and the openness of its trade and capital regimes; and (iii) there is a secular fall of the labor share, especially marked for countries that experience financial crises, due to the fact that crises leave distributional scars, and because crises have become more un-equalizing over time. These empirical regularities suggests that labor is not simply a bystander that is hurt unintentionally by financial crises, but rather, that temporary changes in distribution can be a means by which labor partially bails out capital, and thus plays an important role in resolving financial crises. The accumulated evidence is that the main link between globalization and inequality operates over short periods of distributional fights rather than in a more monotonous and spread-out manner.
We use two distinct panel datasets to extract and examine data on the labor share of output. From the first, we examine trends in the economy-wide labor share and from the second, we examine trends in the labor share of the manufacturing sector over the last three decades. Both datasets show that labor shares have decreased, starting from about 1980, in most regions of the world. This finding is robust to adjustments for self-employment as well as adjustments for unbalanced panel structure. Furthermore, we present evidence that as a first approximation, this decrease is driven by declines in intra sector labor shares as opposed to movements in activity towards sectors with lower labor shares.
In recent years, economists and other social scientists have devoted extensive research efforts to understanding the widening wage gap between high-skill and low-skill workers. This paper focuses on a slightly different question: how has globalization affected the relative share of income going to capital and labor? Using a panel of over one hundred countries, this paper analyses trends in labor shares and examines the relationship between shares and measures of globalization. Contrary to recent literature, the evidence suggests that labor shares are not constant over time. Over the 1960 to 1997 period, labor shares in poor countries fell, while shares in rich countries rose. These changes in labor shares are driven by changes in factor endowments and government spending, as well as by traditional measures of globalization, such as trade shares, exchange rate crises, movements in foreign investment, and capital controls. In particular, the results suggest that rising trade shares and exchange rate crises reduce labor's share, while capital controls and government spending increase labor's share.
Using the data from the Urban Household Survey, the authors examine trends of raw labor and human capital's share of GDP in order to explain the decreasing trend of labor's share in China during 1988 to 2007. The authors divide labor into raw labor and human capital by applying Mincerian earning regressions and find that human capital's share increases rapidly while the raw labor's share decreases steadily. Extending the MRW growth framework, the authors find that the movement of national income distribution is closely related to the unbalanced growth of three factors, namely physical capital, human capital and raw labor. Factor growth data from 1995 to 2007 further confirms that steady growth of physical capital, slowing down of the growth rate of human capital, and negative growth rate of raw labor are the causes of decreasing labor's share of GDP since 1998.
An increase in the wage share has contradictory effects on the subaggregates of aggregate demand. Private consumption expenditures ought to increase because wage incomes typically are associated with higher consumption propensities than capital incomes. Investment expenditures ought to be negatively affected because investment will positively depend on profits. Net exports will be negatively affected because an increase in the wage share corresponds to an increase in unit labour costs and thus a loss in competitiveness. Therefore, theoretically, aggregate demand can be either wage-led or profit-led depending on how these effects add up. The results will crucially depend on how open the economy is internationally. The paper estimates a post-Kaleckian macro model incorporating these effects for the Euro area and finds that the Euro area is presently in a wage-led demand regime. Implications for wage policies are discussed. Copyright The Author 2008. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.
This paper investigates the effects of financialisation and functional income distribution on aggregate demand in the USA by estimating the effects of the increase in rentier income (dividends and interest payments) and housing and financial wealth on consumption and investment. The redistribution of income in favour of profits suppresses consumption, whereas the increase in the rentier income and wealth has positive effects. A higher rentier income decreases investment. Without the wealth effects, the overall effect of the changes in distribution on aggregate demand would have been negative. Thus a pro-capital income distribution leads to a slightly negative effect on growth, i.e. the USA economy is moderately wage-led. Copyright The Author 2011. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.
We analyse the relationship between functional income distribution and economic growth in Austria, France, Germany, the Netherlands,
the UK and the USA from 1960 until 2005. The analysis is based on a demand-driven distribution and growth model for an open
economy inspired by Bhaduri and Marglin, which allows for either profit- or wage-led growth. We find that growth in France,
Germany, the UK and the USA has been wage-led, whereas Austria and the Netherlands have been profit-led. In the case of Austria
a domestically wage-led economy changes to profit-led when including the effect of distribution on external trade. The Netherlands,
however, are already profit-led without external trade. Our results so far only partially confirm Bhaduri and Marglin's theoretical
conclusion that wage-led growth becomes less feasible when the effects of distribution on foreign trade are taken into account.
In a seminal paper on Marxian business cycle theory, Goodwin (1967) presented a model which assumed that a higher wage share leads to lower investment and thus a general economic slowdown. In contrast Kalecki (1971) was arguing that a higher wage share would have an expansionary effect because the consumption propensity out of wage income is higher than that out of profit income. Based on a general model that allows for wage-led as well as profit-led demand regimes, this paper estimates the effects of a change in the wage share on aggregate private domestic demand with quarterly data for 12 OECD countries.
JEL classification: E11, E12, E20, E22, E25
Post-Keynesian and Marxian macro models assume that wage increases that lower profits have an adverse impact on investment spending. The experience of Korea during the period 1975-1993 contradicts this assumption. This paper reports results obtained from estimating a modified neo-Kaleckian investment function that examines the impact of increases in the wage share on business spending. Results of the Granger tests that assess the direction of causality between wages, investment, and productivity are also given. Tests indicate that lagged values of the wage share of income have a positive impact on investment. There are several explanations for this, most of which stem from restrictions on foreign direct investment, and the government's ability to discipline capital through its control over loanable funds coupled with the use of measurable benchmarks in export sales in return for access to subsidized credit and other "carrots." Firms appear to be constrained by these factors to respond to wages hikes by adopting technological upgrades, thereby raising productivity and maintaining export competitiveness.
The paper discusses the interactions of changes in income distribution and the accumulation dynamics in the post-Fordist accumulation regime in OECD countries, which is characterized by deregulated financial markets. The neoliberal mode of regulation came with a decisive shift in power relations at the expense of labor, which is clearly reflected in the fall of wage shares across OECD economies. The notion of a “finance-dominated” accumulation regime is proposed to highlight that financial developments crucially shape the pattern and the pace of accumulation. Financial globalization has relaxed balance of payment constraints and thereby allowed the build up of big international imbalances. The combination of real wage moderation and financial liberalization has led to different strategies (or at least outcomes) in different countries. While some countries (like the USA) exhibit a credit-fuelled consumption-driven growth model that comes with large current account deficits, others (like Germany and Japan) show an export-driven growth model with modest consumption growth and large current account surpluses. Overall the finance-dominated accumulation regime is characterized by a mediocre growth performance and by a high degree of fragility.
Germany has experienced a period of extreme nominal and real wage moderation since the mid 1990s. Contrary to the expectations of liberal economists this has failed to improve Germany’s mediocre economic performance. However, Germany is now running substantial current account surpluses. One possible explanation for Germany’s disappointing performance is found in Kaleckian theory, which highlights that the domestic demand effect of a decline in the wage share will typically be contractionary, whereas net exports will increase (Blecker 1989). The size of the foreign demand effect will critically depend on the degree of openness of the economy. The paper aims at estimating the demand side of a Bhaduri-Marglin (1990) –type model empirically for Germany. The paper builds on the estimation strategy of Stockhammer, Onaran and Ederer (2007) and Hein and Vogel (2008a, 2008b). The main contribution lies in a careful analysis of the effects of globalization. Since Germany is a large open economy by now it is a particularly interesting case study.
This paper aims at empirically estimating the demand effects of changes in functional income distribution for Austria. Based
on a Post-Kaleckian macro model, this paper estimates the effects of a change in the wage share on the main demand aggregates.
The results for the behavioral functions for consumption, investment, prices, exports and imports are compared with the specifications
of the WIFO macro model and the IHS macro model. A reduction in the wage share has a restrictive effect on domestic demand
as consumption decreases more strongly than investment increases. Because of the strong effects on net exports the overall
effects of a decrease in the wage share are expansionary. However the latter effect operates only as far as the fall in the
wage share increases competitiveness. As wage shares were also falling in Austria’s main trading partners, the effect seems
to have been neutralized.
There are regular counterclockwise cycles involving capacity utilization u (horizontal axis) and the labor share &psgr; (vertical axis) in the US economy since 1929. As in Goodwin's cyclical growth model, &psgr; can be interpreted as a Lotka-Volterra predator variable and u as prey. In a phase diagram, dynamics around the &udot;=0 schedule respond to effective demand that econometric estimation (1948-2002) shows to be profit-led. Distributive dynamics around the =0 curve demonstrate a long-term profit squeeze. Across cycles, the real wage and labor productivity grow at 0.57 per cent per quarter, holding the labor share broadly stable. Modeling the cycle in the (u, &psgr;) plane provides a parsimonious description of demand and distributive dynamics, consistent with the macroeconomics embedded in the work of Kalecki, Steindl, Goodwin and many subsequent authors. Copyright © 2006 The Authors; Journal compilation © 2006 Blackwell Publishing Ltd.
This paper explores one aspect of the relationship between the system of production and the macroeconomic structure, namely the role of profitability in determining investment demand and the level of economic activity. Within the system of production, wages are a cost: the lower are profits per unit of production, the lower the stimulus to investment. In a Keynesian view of the macroeconomic structure, however, wages are a source of demand, hence a stimulus to profits and investment. In this view, aggregate demand provides the way out of the dilemma that high wages pose for the system of production. If demand is high enough, the level of capacity utilization will in turn be high enough to provide for the needs of both workers and capitalists. The rate of profit can be high even if the profit margin and the share of profit in output are low and the wage rate correspondingly high.
This paper considers unit labor costs (ulcs), i.e., the ratio of the wage rate to labor productivity, as the indicator of competitiveness in the Philippines. It is shown that ulcs have an interpretation from the point of view of the functional distribution of income (i.e., the distribution of output between labor and capital). The paper documents the dynamics of the labor share in national income for 1980-2002, and provides an analysis of the long-run performance of the Philippine economy. The most salient features are: (i) decreasing wage rate (until the mid-1990s) and labor share; (ii) stable profit rate and increasing capital share: (iii) stagnant capital-labor ratio; (iv) decreasing capital productivity; (v) decreasing labor productivity (until the mid-1990s); and (vi) increasing mark-up, the latter interpreted as an indicator of the firms' capacity to enforce a certain claim on profits against laborers and competitors, or as an index of the capacity of firms to exert anticompetitive practices. It is argued that these characteristics indicate that the country is submerged in a " low-level equilibrium trap." This situation has profound implications for long-run growth and for the potential growth rate of the country, and explains the progressive deterioration of the Philippines during the last two decades, although some signs of recovery can be discerned.
This chapter assesses trends in the labour share of income across the world and discusses the importance of financial globalization and labour market regulation in explaining these trends.
Globalization is exposing social fissures between those with the education, skills, and mobility to flourish in an unfettered world market--the apparent "winners"--and those without. These apparent "losers" are increasingly anxious about their standards of living and their precarious place in an integrated world economy. The result is severe tension between the market and broad sectors of society, with governments caught in the middle. Compounding the very real problems that need to be addressed by all involved, the kneejerk rhetoric of both sides threatens to crowd out rational debate. From the United States to Europe to Asia, positions are hardening. Author Dani Rodrik brings a clear and reasoned voice to these questions.Has Globalization Gone Too Far? takes an unblinking and objective look at the benefits--and risks--of international economic integration, and criticizes mainstream economists for downplaying its dangers. It also makes a unique and persuasive case that the "winners" have as much at stake from the possible consequences of social instability as the "losers." As Rodrik points out, ". . . social disintegration is not a spectator sport--those on the sidelines also get splashed with mud from the field. Ultimately, the deepening of social fissures can harm all." President Clinton read the book and it provided the conceptual basis for the trade/IMF portions of his State of the Union message in January 1998. * Globalization is "the next great foreign policy debate," Thomas Friedman of the New York Times wrote, and he found Has Globalization Gone Too Far? "provocative" on the subject. This book provides a critical definition--and welcome clarity--to that debate.
The aim of this paper is to analyze the changes in the wage share in the manufacturing industry in Mexico, Turkey and Korea in the era of globalization. The focus is on the one hand on the effects of globalization on the wage share, which is measured by the effects of international trade and FDI intensity of the economy. On the other hand, the process of opening up has been accompanied by major currency crises in most developing countries in the last decade, which has affected the wage share through exchange rate depreciation and economic recession. The paper develops a Post-Keynesian conflicting claims model for an open economy under the pressure of globalization, and an equation for the wage share is estimated for each country using the Seemingly Unrelated Regression method. The results show that both recessions and nominal depreciations have a clear and lasting negative effect on the manufacturing wage share in all countries, whereas the effect of openness, in particular international trade depends on industrial policy structure. Increased export intensity leads to a decline in the manufacturing wage share in Turkey and Mexico, but has no significant effect in Korea. The positive expectations from FDI are also not materialized in any of the three countries.
The paper investigates the relation between effective demand, income distribution and unemployment empirically. A Kaleckian macro model is presented and tested by means of a structural vector autoregression (VAR) model. The hypotheses explored focus on the determination of unemployment. The VAR model consists of capital accumulation, capacity utilization, the profit share, unemployment and the growth of labor productivity and is estimated for the USA, UK and France. We find that employment is demand-led and that income distribution has little effect on either demand or employment. Technological progress effects income distribution as well as employment.
Many widely used economic models implicitly assume that income shares should be identical across time and space. Although time-series data from industrial countries appear consistent with this notion, cross-section data generally appear to contradict the assumption. A commonly used calculation suggests that labor shares of national income vary from about .05 to about .80 in international cross-section data. This paper suggests that the usual approach underestimates labor income in small firms. Several adjustments for calculating labor shares are identified and compared. They all yield labor shares for most countries in the range of .65.80.
This study analyses the relative impact of profitability and demand on accumulation in Turkish private manufacturing industry on the basis of the theoretical framework outlined by Marglin & Bhaduri (1990). The main motivation behind this analysis is to shed light on the demand aspects of the slowdown in accumulation in the manufacturing industry despite the increase in profitability during the structural adjustment episode. For this purpose, the ratio of investment to value-added is estimated as a function of the profit share and an accelerator term, namely the growth rate of value-added, using panel data for the 26 industries of the private manufacturing sector. The results show that investment is not responsive to the profit share, whereas growth has a consistent positive impact. This result is significant in explaining the inability of pro-capital income policies to stimulate manufacturing investments throughout the export-promotion era. The export boom maintained by the use of the existing capacity rather than by new investments shows the limits of export demand to compensate for the fall in domestic consumption out of wages. The results make a strong case against the argument that profitability enhances accumulation. Evidence shows that it is not possible to enhance accumulation and long-term potential for growth simply based on promoting profitability, without paying attention to the demand aspects.
Exxon Mobil and ConocoPhillips stock price has been predicted using the difference between core and headline CPI in the United States. Linear trends in the CPI difference allow accurate prediction of the prices at a five to ten-year horizon.
Using the Keynesian theory of effective demand, this paper demonstrates how particular models, such as that of "cooperative capitalism" enunciated by the left Keynesian social democrats, the Marxian model of "profit squeeze" emphasizing distributive conflict, and even the conservative model relying on "supply side" stimulus, fit in as particular variants of a more general theoretical scheme through a reconstruction of the familiar IS schedule. The argument is weaved around the theme of the relations between unemployment and real wage in the context of both a closed and an open economy to explain the common macroeconomic basis of contesting ideologies. Copyright 1990 by Oxford University Press.
This paper shows that the neo-Keynesian case for wage-led growth does not generally hold in an open economy model. Wage increases cause a loss of competitiveness that reduces the trade balance. If the economy is relatively open to trade and price elasticities satisfy certain restrictions, the worsening of the trade balance more than outweighs the increase in workers' consumption, thus reducing the growth rate. The main theoretical innovation is a flexible markup pricing rule that allows changes in unit labor costs and exchange rates to affect profit margins. Implications for international relations and class conflict are discussed. Copyright 1989 by Oxford University Press.
Real wage growth restraint is generally regarded as a necessary condition for sustained gross domestic product growth and lower unemployment in the Organization for Economic Cooperation and Development (OECD). We use a general Keynesian growth model, allowing demand growth to be wage led or profit led, to argue that the case for real wage restraint is based on weak foundations. The model is applied to eight OECD countries (1960-2000). We find that (1) demand is wage led in France, Germany, Italy, the Netherlands, Spain, and the United Kingdom, and (2) the decline in world trade growth is the dominant cause of sluggish growth in all economies, including profit-led Japan and the United States.
The aim of the paper is to compare the relationship between distribution, growth, accumulation, and employment in Turkey and in South Korea. These countries represent two different cases of export-oriented growth. The results of the structural adjustment experiences of both countries are in striking contrast to orthodox theory; however, they also present counterexamples to each other in terms of policies of economic integration. The paper tests whether accumulation and employment are profit-led in these two countries by means of a post-Keynesian open economy model, which includes a demand-driven labor market and a reserve army effect in the Marxian sense. The model is estimated in a structural vector autoregression (SVAR) form in order to capture the complex simultaneous interaction between distribution, accumulation, growth, and employment within a systems approach. This model, and the method of estimation, are the two innovations of this paper in addressing the crucial policy issues related with structural adjustment problems in developing countries. The results show that decreasing the wage share does not stimulate accumulation, growth, and employment. Interestingly, the relation between wage share, investment, growth, and employment is similar in both Turkey and South Korea; however, the former experienced low and the latter high growth rates due to different export-oriented growth strategies. The explanation for this difference is found in the field of institutions, power structures, and state policies.
The rapid expansion of industrial output in Poland during the 1970s came to an abrupt halt during the latter part of the decade. This paper examines the factors contributing to the economic collapse and measures the economic costs in terms of foregone output. The basic results indicate that, although a decline in hard-currency imports and labor-hours worked were substantial contributing factors, most of the decline in output is accounted for by factors such as planning, managerial difficulties, or political unrest. In addition the gap between actual and potential industrial output reached more than 35%.
‘Wages, aggregate demand, and employment in an open economy: an empirical investigation
- S Bowles
- R Boyer
‘The labour income share in the European Union
- European Commission
‘Demand, real wages and economic growth Autumn 1–39
- R Rowthorn
Decline in wage share: causes and prospects’. Paper presented at the Regulating for Decent Work Conference
- E Stockhammer
Adjusted wage share database
- M Charpe
‘Is aggregate demand wage-led or profit-led? National and global effects
- Ö Onaran
- G Galanis
‘Functional income distribution and growth in Thailand: single equation estimations based on Bhaduri
- B Jetin
- O Kurt
Three essays on monetary policy and economic growth in China
- P Wang
Functional income distribution and growth in Thailand: single equation estimations based on Bhaduri/Marglin model
- B Jetin
- O Kurt
Wage share and aggregate demand: Contributions for labour and macroeconomic policy’. Paper presented at the Regulating for Decent Work Conference
- J Lindenboim
- D Kennedy
- J M Gratia
Demand, real wages and economic growth', Thames Papers in Political Economy
- R Rowthorn