3/5/2016 A Very Short Explanation of Profit- versus Wage-led Growth Radical Political Economy

Radical Political
Economy
Blog hub of the Union for Radical Political Economics

A Very Short Explanation of Profit- versus Wage-led Growth

Posted on April 13, 2016April 14, 2016 by davidmelds

By David M. Fields

A central concern in Left (Post)-Keynesian heterodox macroeconomics is the interaction between

economic activity and the distribution of the income that is generated. The problematic deals with
the quandary on whether rising wage-shares bolster demand and increases the rate of capacity
utilization, which, in turn, induces capitalists to invest, or that rises in the prot share serve as the
primary stimulus to economic growth. Put dierently, the subject deals with the distinction between
prot- and wage-led growth (Bhaduri and Marglin, 1990; Vernengo and Rochon, 2001).

A large body of work has investigated the issue empirically (cf. Stockhammer and Onaran, 2013;
Barbosa-Filho and Taylor, 2006; Hein and Vogel, 2008; Stockhammer et al, 2009), yet the primary
theoretical dierence lies in the treatment of capitalist investment. Wage-led growth models, inspired
by the contributions of Nicholas Kaldor, estimate the degree to which capitalist investment is
derived demand a uned to the growth of autonomous demand. In contrast, prot-led models,
inuenced by the work of Joan Robinson, gauge to determine the extent to which capitalist
investment is an independent function subordinate to the rate of prot. In this sense, changes in
income distribution have ambiguous eects on capital accumulation, which ultimately rests on the
exact specication of the investment function in relation to an approximate remunerated risk, i.e. a
normal rate of prot, of employing capital productively.

References:

Barbosa-Filho, Nelson H. and Lance Taylor. 2006. Distributive and Demand Cycles in the US
Economya Structuralist Goodwin Model. Metroeconomica 57(3):389411.

Bhaduri, Amit and Stephen Marglin. 1990. Unemployment and the Real Wage: The Economic
Basis for Contesting Political Ideologies. Cambridge Journal of Economics 14(4):37593.
Hein, Eckhard and Lena Vogel. 2008. Distribution and Growth Reconsidered: Empirical Results for
https://urpe.wordpress.com/2016/04/13/a-very-short-explanation-of-profit-versus-wage-led-growth/
1/2
3/5/2016 A Very Short Explanation of Profit- versus Wage-led Growth Radical Political Economy

Hein, Eckhard and Lena Vogel. 2008. Distribution and Growth Reconsidered: Empirical Results for
Six OECD Countries. Cambridge Journal of Economics 32(3):479511.

Stockhammer, Engelbert and zlem Onaran. 2004. Accumulation, Distribution and Employment:
A Structural VAR Approach to a Kaleckian Macro Model. Structural Change and Economic
Dynamics 15(4):42147.

Stockhammer, Engelbert and Ozlem Onaran. 2013. Wage-Led Growth: Theory, Evidence,
Policy. Review of Keynesian Economics 1(1):6178.

Stockhammer, Engelbert, zlem Onaran, and Stefan Ederer. 2009. Functional Income
Distribution and Aggregate Demand in the Euro Area. Cambridge Journal of Economics
33(1):13959.

Vernengo, Matias and Louis-Philippe Rochon. 2001. Kaldor and Robinson on Money and
Growth. The European Journal of the History of Economic Thought 8(1):75103.

About these ads (https://wordpress.com/about-these-ads/)

Posted in Capitalism, David Fields, Distribution, Eective Demand, Growth, Heterodox

Economics, Keynes, Macroeconomics, Post-Keynesian, Prots, Radical Economics, Wages

Create a free website or blog at WordPress.com. | The Gateway Theme.

https://urpe.wordpress.com/2016/04/13/a-very-short-explanation-of-profit-versus-wage-led-growth/ 2/2