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Income Distribution and Activity Levels in an Open Economy: The Case of Turkey, 1988-2016
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This paper documents the downward trend in the labor share of global income since the early 1990s, as well as its heterogeneous evolution across countries, industries and worker skill groups, using a newly assembled dataset, and analyzes the drivers behind it. Technological progress, along with varying exposure to routine occupations, explains about half the overall decline in advanced economies, with a larger negative impact on middle-skilled workers. In emerging markets, the labor share evolution is explained predominantly by global integration, particularly the expansion of global value chains that contributed to raising the overall capital intensity in production.
Orthodox economists generally think about labor market that the price stability and
low unemployment cannot be achieved at the same time. In this sense, the
Orthodox argument discusses that a decline in the aggregate demand will decrease
the money wages and real wages proportionally, and increase the volume of
employment. Michal Kalecki denies such a wage policy which is consistently
determined by this idea. Wages reflect the price-money wage relation in real terms.
Prices set in regard to the degree of monopoly. In this context, it is assumed real
wages is determined depending upon the degree of monopoly, labor productivity
and price of import goods. According to Kalecki, Orthodoxian view which relates a
decrease in real wages with an increase in production based on increasing marginal
cost assumption and Kalecki does not accept this perspective. Kaleckian Post-
Keynesian labor market will be theoretically discussed and the determination
process of the real wage will be empirically analyzed for Turkish economy over the
period 1989:1 to 2012:4.
This paper investigates the dynamic relationships among income distribution, debt ratio, and capital accumulation in the Japanese economy post 1990s. The paper identifies the contemporaneous linkages and investigates the dynamic relationships among the three variables in the vector autoregression (VAR) model on the basis of the Post Keynesian model. The accumulated impulse response functions of the structural VAR indicate that although profit share sustains capital accumulation, a high debt ratio restrains it. In other words, the income distribution-capital accumulation pattern of the Japanese economy over the past 20 years has been a profit-led one, and the debt-capital accumulation pattern over the same period has been a debt-burdened one.
This paper takes advantage of a recently-compiled cross-country dataset that distinguishes market inequality from net inequality and allows us to calculate redistributive transfers for a large number of country-year observations. Our main findings are: 1. More unequal societies tend to redistribute more. 2. Lower net inequality is robustly correlated with faster and more durable growth, for a given level of redistribution. 3. R edistribution appears generally benign in terms of its impact on growth; only in extreme cases is there some evidence that it may have direct negative effects on growth. Thus the combined direct and indirect effects of redistribution -including the growth effects of the resulting lower inequality- are on average pro-growth. While we should be cognizant of the inherent limitations of the data set and of cross-country regression analysis more generally, we should be careful not to assume that there is a big tradeoff between redistribution and growth. The best available macroeconomic data do not support that conclusion.
The paper provides an overview of the concept of wage-led growth, both as an analytical concept and as an economic policy strategy. At the core of our analysis is the distinction between wage-led and profit-led demand regimes. The Kaleckian tradition in macroeconomics asserts that a higher wage share will have expansionary effects. Bhaduri and Marglin (1990) generalize the model by allowing for classical mechanisms. The paper presents a two-country short run model to clarify the key concepts surrounding a wage-led vs a profit-led demand regime. It distinguishes carefully between partial and total effects and it analyses demand regimes with respect to national as well as international changes in the wage share. We also review the empirical literature. Our reading is that the available evidence indicates that demand in most economies is domestically wage-led. Changes in functional income distribution also have supply-side effects. Available evidence suggests that higher wage growth induces higher productivity growth. Neoliberalism resulted in an increase in inequality and a decline in the wage share, but growth has nowhere been based on the profit-led growth process. Rather neoliberalism has given rise to either debt-led or export-led growth regimes. The paper concludes by outlining a wage-led growth strategy and by discussing its limitations.
Globalization is often observed to result in greater labour flexibility and decreased labour bargaining power; thus, imposing
a downward pressure on wages, especially in the sectors producing tradable goods. This would result then in a deterioration
of the wage share and rising inequality within developing countries. In 1980s, Turkey implemented liberalization policies
to promote globalization of the Turkish economy by raising trade and capital flows. Using a sectoral panel data, this paper
shows that low-wage competition followed by trade liberalization reduced the wage shares in the manufacturing industry. The
analysis also exhibits that the financial liberalization and rising capital flows hurt workers by increasing macroeconomic
volatility, leading to financial crises that affected the functional income inequality.
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.
In standard pricing models, movements in demand are partially offset by price responses. In a customer market, however, price
markups may decrease with high demand. Thus, price may magnify, rather than stabilize, demand movements. I consider a monopolist
selling a good of which first-time consumers are uncertain. Repeat customers know that the product works. The monopolist trades
the objectives of exploiting past customers and attracting new ones. In a period with many new potential customers, the monopolist
gives more weight to attracting and lowers its markup. Last, I examine some evidence on whether expansions are periods with
disproportionately many new customers.
As a result of Turkey's currency crisis in 1994, output fell 6 percent, inflation rose to three-digit levels, the Central Bank lost half of its reserves, and the exchange rate (against the US dollar) depreciated by more than half in the first three months of the year. The author presents stylized facts associated with the government's debt-financing mechanisms and other relevant macroeconomic variables to show the system's inherent fragility at the time of the crisis and to clarify the extent to which different factors contributed to the crisis. The author argues that huge requirements for public sector borrowing in 1993 and early 1994, combined with major policy errors in financing the deficit, led to the currency crash. As a result of interventions to control interest rates and treasury borrowing at the same time, the market for domestic borrowing almost disappeared, the government turned to monetization for financing, and the value of the overappreciated Turkish lira plummeted.
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.
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.
Why the ECB wants unions to increase wage demands. Mario Draghi confident pay rises will outpace inflation and help lift the eurozone economy
- C Jones
Jones, C. (2017): "Why the ECB wants unions to increase wage demands. Mario Draghi
confident pay rises will outpace inflation and help lift the eurozone economy",
Financial Times, September 28; available online at
https://www.ft.com/content/8f61a3ac-a29c-11e7-9e4f-7f5e6a7c98a2.
The political economy of inequality, redistribution and boom-bust cycles in Turkey
- Onaran
- C Oyvat
Onaran, Ö and Oyvat, C. (2015): "The political economy of inequality, redistribution and
boom-bust cycles in Turkey", Greenwich Paper in Political Economy GPERC16,
Greenwich Political Economy Research Centre, University of Greenwich.