What is the impact of an exogenous shock to the wage share?

Basu, Deepankar; Gautham, Leila

doi:10.4324/9780367814502-9

Cited by 9 publications

(42 citation statements)

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“…Nonetheless, most empirical works that seek characterizing demand regimes lack open economy variables and international competitiveness in their analysis. The present paper complements the study of Basu and Gautham (2019), Mendieta‐Muñoz et al. (2020) and Blecker et al.…”

Section: Introductionsupporting

confidence: 81%

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Reviewing demand regimes in open economies with Penn World Table data

Marques

2022

The Manchester School

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This paper uses the Penn WorldTable dataset to examine capacity utilization response to changes in the wage share in six developed countries from 1960 to 2019. Our vector autoregression model allows regression coefficients and volatilities to be time-varying in nature. A rolling windowshows that capacity utilization response to the wage share is unstable. We find that a 1-standard deviation shock to the wage share generates a significant negative capacity utilization response in the U.S. and U.K. However, a rise in the wage share decreases capacity utilization of the remaining sample countries only conditional on exogenous wage share changes.

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Section: Introductionsupporting

confidence: 81%

“…Second, concerning Basu and Gautham (2019), we use a greater span of data and a larger sample of countries, ranging from 1960 to 2019, without restricting the coefficients and model variances to be fixed over time. Third, our dataset has become available very recently and allows international comparison in a fully standardized way.…”

Section: Introductionmentioning

confidence: 99%

Reviewing demand regimes in open economies with Penn World Table data

Marques

2022

The Manchester School

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“…8 Similar results using VARs in various different measures of real performance and the wage share for US data 1949-2020 are reported in Barrales-Ruiz et al (2020), although the authors report that whereas shocks to the wage share have effects on real performance that dissipate within 4 years, shocks to real performance have effects on the wage share that persist for more than 6 years. Finally, based on US data and VARs in the wage share, capacity utilization rate, and real exchange rate, Basu and Gautham (2020) again produce impulse response functions consistent with the Goodwin pattern. The authors do not comment directly on the duration of the effects of shocks to the wage share on real performance (and vice versa), but their results are broadly consistent with those of Barrales-Ruiz et al (2020): real activity adjusts faster (within 1-2 years) than distribution, which still shows persistent effects of a shock to real activity after 4 years.…”

Section: Empirical Evidencementioning

confidence: 64%

Whatever Happened to the ‘Goodwin Pattern’? Profit Squeeze Dynamics in the Modern American Labour Market

Setterfield

2021

Review of Political Economy

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The 'Goodwin pattern' -an anti-clockwise rotation in real activity × wage share space recurring at intervals that correspond roughly to the duration of business cycles -is an enduring feature of high-frequency dynamics in capitalist economies. It is well known that the centre or focus of this rotation shifts over time. More recently, however, the Goodwin pattern seems to have broken down, the wage share no longer increasing as the real economy improves over the course of short-term booms. In this paper, the apparent breakdown of the Goodwin pattern is associated with the consolidation of an 'incomes policy based on fear' that is part-and-parcel of neoliberalism. As a result of this incomes policy based on fear, the institutional structure of the labour market disciplines labour at any rate of unemployment. This decouples wage-share dynamics from the state of the real economy, with the result that as recently witnessed in the US, the wage share is rendered invariant to improvements in economic performance over the course of short-term cyclical booms.

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“…The authors employ a two‐dimensional VAR, and find support for a PL/PS regime for most of the post‐war U.S. period. However, their estimation strategy does not include contemporaneous interactions, and is thus not suitable for causal interpretations (see also Basu & Gautham, 2019, p. 9). Proaño et al.…”

Section: Evidencementioning

confidence: 99%

“…In a recent and carefully executed paper, Basu and Gautham (2019) focus on the effect of a shock to the labor share on activity variables in the U.S. macroeconomy, 1973-2018. Across several models and methods, results unequivocally confirm a PL/PS regime.…”

Section: Survey Of the Literaturementioning

confidence: 99%

The distributive cycle: Evidence and current debates

Barrales‐Ruiz

Mendieta‐Muñoz

Rada

et al. 2021

Journal of Economic Surveys

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This paper surveys current debates on the distributive cycle. The literature builds on R.M. Goodwin' s seminal 1967 chapter titled " A growth cycle." We review theoretical motivations for the distributive cycle, which, despite signif-icant differences, all imply that macroeconomic activity leads the labor share in a counter-clockwise cycle in the activity-labor share plane. Subsequently, we summarize and update evidence on the existence of a distributive cycle, with a focus on the post-war US macroeconomy. We analyze activity and labor share series and their interaction in the frequency domain, and also employ stan-dard vector autoregressions. Results confirm the distributive cycle for the US post-war period. We contextualize results vis-à-vis current debates: (1) we consider a financial cycle, to rebut the theoretical possibility of " pseudo-Goodwin" cycles, (2) demonstrate that a suppressed labor share and stagnation are com-patible with short run Goodwin cycles, and argue that this link presents the way forward for research on secular stagnation.

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What is the impact of an exogenous shock to the wage share?

Cited by 9 publications

References 1 publication

Reviewing demand regimes in open economies with Penn World Table data

Reviewing demand regimes in open economies with Penn World Table data

Whatever Happened to the ‘Goodwin Pattern’? Profit Squeeze Dynamics in the Modern American Labour Market

The distributive cycle: Evidence and current debates

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