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• The paper estimates the effect of changes in the wage share on the growth rate of the US economy for the period 1947–2019. • We use a time varying parameter model, which allows for continuous changes in the regime over time. This is the first paper that has attempted to do this. • We find that the US economy became more profit-led in the first postwar decades until the 1970s and has become less profit-led since. In the last fifteen years of our sample the effect of changes in distribution on economic activity is statistically insignificant. This paper estimates the distribution-led regime of the US economy for the period 1947–2019. We use a time varying parameter model, which allows for continuous changes in the regime over time. To the best of our knowledge this is the first paper that has attempted to do this. This innovation is important, because there is no reason to expect that the regime of the US economy (or any economy for that matter) will remain constant over time. On the contrary, there are significant reasons that point to changes in the regime. We find that the US economy became more profit-led in the first postwar decades until the 1970s and has become less profit-led since. In the last fifteen years of our sample the effect of changes in distribution on economic activity is statistically insignificant. [ABSTRACT FROM AUTHOR]

This paper deals with two intrinsically linked issues: the endogeneity of the demand regime and the personal distribution impact on aggregate demand. By assuming that saving is a function of personal rather than functional income distribution, an increase of the labour share is effective in boosting consumption and aggregate demand, not per se, but only as long as it reduces personal inequality. As the labour share increases, both the demand regime type—the sign of the slope of the demand schedule—and its strength—the size of the slope of the demand schedule - can endogenously change. Concerning the former, there can be a threshold value for the wage share beyond which there is a shift from wage-led to profit-led demand. The analysis shows that, unlike most Kaleckian models, profit inequality is just as important as wage inequality in determining the demand regime type and its strength. [ABSTRACT FROM AUTHOR]

ABSTRACT Kaleckian literature is considered an important theme in the post-Keynesian school of economic thought. In the aftermath of the financial crisis, the endeavors of forming a new consensus regarding essential economic issues, in particular achieving economic growth became a need. Thus, the Kaleckian models returned to be in the spot since these models tackle the impact of changes in the distribution of income and address the question whether a redistribution of income away from wages and towards profits is capable of boosting growth. In this sense, this paper return to Kaleckian insights and offers a theoretical discussion of the distributional effects on aggregate demand and economic growth. Moreover, through the lens of neo-Kaleckian tradition, the evolution of the debate on wage-led and profit-led regimes in recent decades can be traced.

Orientation: This article assessed the impact of functional income distribution on economic growth, and how it can characterise the growth regime as profit-led or wage-led. Research purpose: This study investigated whether the problem of falling wage share as a percentage of gross domestic product (GDP) may have characterised growth as wage-led or profit-led between 1975 and 2019 in South Africa. Motivation for the study: Economic growth in South Africa has been low post the 2008 financial crisis and employees complain about insufficient wages. Research design/approach and method: This article used the Keynesian aggregate demand model and conducted an autoregressive distributed lag (ARDL) approach to assess the presence of a long-run relationship between changes in income distribution and aggregate demand. Main findings: The study found that the profit rate, rate of capacity utilisation and the real exchange rate have an influence on net exports. Profit rate and rate of capacity utilisation influenced aggregate consumption. Investment was affected by business confidence, profit rate, foreign demand and rate of capacity utilisation. Demand formation was exhilarationist and growth was profit-led. The foreign sector amplified the extent of profit-ledness. Practical/managerial implications: Government should create policies to reduce inequality in income shares. Institutions should consider reformulating labour dynamics to manage the extent to which the foreign sector amplified the economy to be profit-led. Contribution/value add: The South African economy is profit-led, inconsistent with developed country literature, which suggests that economies are generally wage-led. The findings highlight the importance of the foreign sector in determining the demand formation and growth regimes in the economy.

Kaleckian literature is considered an important theme in the post-Keynesian school of economic thought. In the aftermath of the financial crisis, the endeavors of forming a new consensus regarding essential economic issues, in particular achieving economic growth became a need. Thus, the Kaleckian models returned to be in the spot since these models tackle the impact of changes in the distribution of income and address the question whether a redistribution of income away from wages and towards profits is capable of boosting growth. In this sense, this paper return to Kaleckian insights and offers a theoretical discussion of the distributional effects on aggregate demand and economic growth. Moreover, through the lens of neo-Kaleckian tradition, the evolution of the debate on wage-led and profit-led regimes in recent decades can be traced. [ABSTRACT FROM AUTHOR]

The purpose of this research is to analyze whether the Brazilian economy behaved under a wage-led or profit-led regime between 1960 and 2011, considering a Post-Kaleckian model in a context of external constraints. The time span is limited by data availability (i.e., 2011). To answer the question of whether the Brazilian economy works under a wage-led or profit-led regime, we propose a simple Post-Kaleckian model. The model suggests that a profit-led regime is more probable for Brazil. Moreover, a wage-led regime occurs when a balance of payments constrained growth model is taken into consideration. Likewise, the real exchange rate has a positive impact on economic growth through the export channel. This result is a novelty in the recent literature about the relationship between real exchange rate and economic growth within a Post-Kaleckian model. The Brazilian economy was chosen as it is one of the biggest economies in Latin America. [ABSTRACT FROM AUTHOR]

The debate about how to reconcile political with economic democracy is translated within the framework of wage and profit-led growth in this article. The inherent tension between providing sufficient profit incentive to motivate investment by the capitalist class and maintaining electoral accountability to the economically less privileged majority is examined through an analysis of the effectiveness of policies to raise the social wage. This article shows how wider circumstances characterizing regimes as wage- or profit-led matter for reconciling a higher profit share with a higher social wage. [ABSTRACT FROM AUTHOR]

Neste artigo apresentamos um modelo macrodinâmico de inspiração pós-keynesiana com o objetivo de analisar os efeitos da abertura da conta de capitais sobre a performance macroeconômica das economias em desenvolvimento. Neste particular, os exercícios de estática comparativa mostram que um aumento do endividamento externo pode ter efeitos benéficos para a economia no curto prazo, uma vez que induz o aumento do grau de utilização da capacidade produtiva e da taxa de crescimento do estoque de capital. No entanto, a dinâmica de longo prazo mostra que, sob certas condições, o acesso ao mercado internacional de capitais pode gerar trajetórias explosivas para o sistema econômico, notadamente em um contexto em que a política monetária é conduzida com base em um regime de metas de inflação. Além disso, demonstra-se que uma redução da meta de inflação perseguida pelo Banco Central, dentro do contexto de abertura da conta de capitais e de captação externa por parte das empresas, pode gerar um aumento permanente da taxa real de juros, bem como um aumento do próprio custo do endividamento externo da economia contribuindo, assim, para uma maior fragilidade externa. Ademais, analisou-se a consistência das estratégias de crescimento das economias desenvolvidas e em desenvolvimento. No geral, os resultados encontrados mostram a validade da Lei de Thirlwall, de modo que o regime de crescimento das economias depende, em última análise, das restrições impostas pelas elasticidades-renda das importações e exportações.

The main purpose of this paper is to empirically investigate whether, between 1970 and 2008, the Brazilian economy was profit-led or wage-led. To this end, we approach a canonical post-Keynesian growth model (PKGM) to estimate certain vector autoregressive (VAR) models and perform Granger non-causality tests. Three main results are extracted from the generalized impulse-response functions provided by the VAR models. First, a positive profit-share innovation affects economic growth and capacity utilization rate, both in the same direction, suggesting a profit-led pattern. Second, a profit share shock positively affects both the ratio actual/potential output, and capital accumulation, reinforcing the previous result. Third, a capacity utilization shock is shown to positively affect both output growth and capital accumulation via the accelerator effect. On the one hand, the pairwise Granger non-causality test does not provide any evidence of causality running from profit share to economic growth or capacity utilization. On the other hand, there is some evidence of Granger causality running from profit share to capital accumulation. [ABSTRACT FROM AUTHOR]

We derive a new Keynesian IS curve that is augmented to capture the direct effects of the labour share on output. Our derivation shows that the direct effect of the labour share on output is ambiguous. Furthermore, theory suggests that the expected labour share negatively affects output. Empirically, we find that the labour share plays a significant role in driving output dynamics. However contrary to theoretical expectation, the expected labour share positively affects output in some cases, a finding we call the 'labour share puzzle'. We also find that over time, there seems to be a general shift in aggregate demand dynamics towards being profit-led, i.e. rising labour share decreases output. We conclude that policymakers should not ignore the labour share in their decisions. [ABSTRACT FROM AUTHOR]

The conventional view argues that devaluation increases the price competitiveness of domestic goods, thus allowing the economy to achieve a higher level of economic activity. However, these theoretical treatments largely neglect two important effects following devaluation: (1) the inflationary impact on the price of imported intermediate inputs, which raises the prime costs of firms and deteriorates partially or totally their price competitiveness; and (2) the redistribution of income from wages to profits, which ambiguously affects the aggregate demand as workers and capitalists have different propensities to save. New structuralist economists have explored these stylized facts neglected by the orthodox literature and, by and large, conclude that devaluation has contractionary effects on growth and positive effects on the external balance. Given that empirical evidence on the correlation between devaluation and growth is quite mixed, we develop a more general Keynesian–Kaleckian model that takes into account both opposing views in order to analyze the net impact of currency depreciation on the short-run growth rate and the current account. We demonstrate that this impact can go either way, depending on several conditions such as the type of growth regime, that is, wage-led or profit-led, and the degree of international price competitiveness of domestic goods. [ABSTRACT FROM PUBLISHER]

The wage- versus profit-led distinction is a cornerstone of post-Keynesian growth theory. However, the existing theoretical literature focuses on the functional distribution of income and ignores the distribution of wages. This paper shows how the distribution of wages affects whether an economy is wage- or profit-led. Since the distribution of wages impacts personal income distribution, that explains why income inequality can also impact regime character. Increases in workers' wage share always increase growth and capacity utilization regardless of the economy's character. Furthermore, an increase in workers' wage share can flip an economy from being profit-led to wage-led. [ABSTRACT FROM AUTHOR]

This paper examines how variable output and profit share jointly determine investment and saving, while the difference between investment and saving drives the changes in output and profit share. Analysis of the resulting pair of differential equations yields novel implications for the multiplier process. In this more general framework a number of separate strands of the Keynesian-inspired literature can be understood. In particular, the model incorporates both forced saving and profit squeeze to analyse the stability of the dynamical system, and brings out the complex relation between in and out-of-equilibrium profit-led and wage-led regimes. [ABSTRACT FROM AUTHOR]