Weaknesses of ‘wage-led growth’*

Abstract

The emphasis in post-Keynesian macroeconomics on wage-versus pro…tled growth may not have been helpful. The pro…t share is not an exogenous variable, and the correlations between the pro…t share and economic growth can be positive for some exogenous shocks but negative for others. The terminology, second, suggests a unidirectional causality from distribution to aggregate demand while in fact distribution can itself be directly a¤ected by shifts in aggregate demand. The reduced form correlations, third, depend on interactions with the labor market, and a focus on the goods market can be misleading. If, fourth, empirical estimates are taken at face value, the support for wage-led conclusions is much weaker than suggested by the literature. A focus on the growth-bene…ts of a reduction in inequality, …nally, makes for an impoverished policy discussion.

Autonomous demand, Harrodian instability and the supply side

“…In these models, an increase in the saving rate reduces the employment rate and generates a level effect of the same kind as the one that can be found in the models with autonomous demand. The paradox of cost—a positive effect of a rise in the real wage on profits—ceases to be well‐defined if the real wage is itself an endogenous variable (Skott, ). One can examine, however, the effects of changes in parameters that influence wage and price determination.…”

Wage-led versus profit-led demand regimes: the long and the short of it

“…Nikiforos and Foley (2012) and Palley (2014) show that, in the presence of non-linearities in either the demand or distributional relationship (or both), there may be multiple equilibria and the response of the system to exogenous shifts in distribution is not independent of initial conditions. Skott (2017) notes that, even in the absence of non-linearities, the slope of the aggregate demand relationship does not uniquely determine the impact of changes in exogenous factors that affect both the demand and distribution curves simultaneously. This paper will focus on the divergent empirical estimates and will suggest another possible (and less explored) explanation for their conflicting findings.…”

Post-Keynesian macroeconomics since the mid 1990s: main developments

“…This has recently been analysed in different Kaleckian model frameworks, several of them also containing the effects of distribution conflict on inflation, for example by Assous/Dutt (2013), Bhaduri (2008), Blecker (2011), Cassetti (2003, Dutt (2006aDutt ( , 2010bDutt ( , 2012, , Lavoie (2010, Naastepad/Storm (2010), Nikiforos/Foley (2012), Palley (2014a), Raghavendra (2006), Sasaki (2011), Sawyer (2012, Schütz (2012), Stockhammer (2004a, 2004b and Storm/Naastepad (2012). Skott's (2016) claim that Kaleckians have not thought about feedbacks of demand and growth on income distribution is thus unwarranted. However, his observation that these feedbacks are not systematically included when it comes to the discussion of wage-vs. profit-led demand and growth is true for several empirical studies, as we will see below.…”