Income Distribution and Growth: A Global Model

Abstract

This article estimates the effects of a change in the wage share on growth at global level in the G20 countries. A decrease in the wage share in isolation leads to lower growth in the euro area, Germany, France, Italy, UK, US, Japan, Turkey, and Korea, whereas it stimulates growth in Canada, Australia, Argentina, Mexico, China, India, and South Africa. However, a simultaneous decline in the wage share in all these countries leads to a decline in global growth. Furthermore, Canada, Argentina, Mexico, and India also experience negative effects on growth when they decrease their wage-share along with their trading partners. The results indicate that the global decline in labour share has had significant negative effects on growth.

Wage led aggregate demand in the United Kingdom

“…Studies relying on equation-by-equation estimation procedures, for example, tend to find support for wage led aggregate demand in the UK. This is the case in Bowles and Boyer (1995), Naastepad and Storm (2007), Hein and Vogel (2008), Onaran and Galanis (2014), and Obst and Onaran (2015). The single study using a systems estimation procedure, Stockhammer and Onaran (2004), finds no support for the hypothesis.…”

“…The studies that apply this method to UK data are Bowles and Boyer (1995), Naastepad and Storm (2007), Hein and Vogel (2008), Stockhammer and Stehrer (2011), Onaran and Galanis (2014), and Obst and Onaran (2015). All of these papers, apart from Stockhammer and Stehrer (2011), find that aggregate demand in the UK is wage led.…”

Class or Location? What Explains the Rising Tide of Absolute Global Income Inequality During 1850-2010?

“…Existing research suggests that income inequality can have adverse effects on social justice and economic growth (Persson and Tabellini, 1994;Sen, 2000;Picket and Wilkinson, 2010;Herzer and Vollmer, 2012;Halter et al, 2014;Onaran and Galanis, 2014;Kumhof et al, 2015), and of late the popular perception that globalization is not leading to "a rising tide that lifts all boats" is growing. Accordingly, politicians, academics and the media frequently state that inequality is one of the biggest challenges of our time and that the topic demands much more attention (Obama, 2011;Krueger, 2012;Minton Beddoes, 2012;Shiller, 2012;Stiglitz, 2012;Lagarde, 2013;Piketty, 2015).…”

Global trends in relative and absolute income inequality

“…While the topic fell somewhat out of fashion in the last quarter of the twentieth century (Atkinson, 1997), it has again moved into the centre of political and economic debates. One important reason for the recent revival in interest is new empirical evidence that suggests that high and growing inequality can have adverse effects on macroeconomic stability and can hurt economic growth (Herzer and Vollmer, 2012;Stiglitz, 2012;Goda and Lysandrou, 2014;Halter et al, 2014;Onaran and Galanis, 2014;Ostry et al, 2014;Stockhammer, 2015;Kumhof et al, 2015;OECD, 2015).…”