An exploration of neo-Goodwinian theory of cyclical growth

Codrina Rada, Ansel Shiavone () and Rudiger von Arnim ()
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Ansel Shiavone: Department of Economics, St. John's University, USA
Rudiger von Arnim: Department of Economics, University of Utah, USA

No 2403, Working Papers from New School for Social Research, Department of Economics

Abstract: Neo-Goodwinian theory builds on and extends the classical growth cycle (Goodwin, 1967). It facilitates investigation of short run business cycles and long run economic growth in a unified framework. This paper makes two contributions. First, we summarize recent research on a Keynesian distributive cycle in income-capital ratio, employment rate and labor share. This model generates the Goodwin pattern (short run counter-clockwise cycles in activity-labor share planes) with the Goodwin mechanism (profit-led activity and profit squeeze distribution). Further, the natural rate of growth is wage-led through a positive effect of the labor share on labor productivity growth. The connection of short run profit-led cycles and long run wage-led growth allows for a nuanced discussion of relevant constraints and trade-offs. Second, we respond to renewed criticism that the Goodwin pattern is an artefact of pro-cyclical labor productivity. To clarify this debate, we demonstrate that a two-dimensional model in income-capital ratio and labor share with pro-cyclical labor productivity cannot generate the Goodwin pattern, unless it also features a sufficiently strong Goodwin mechanism. Extending the baseline three-dimensional Keynesian distributive cycle with pro-cyclical labor productivity does not alter key conclusions concerning short run profit led cycles and long run wage led growth.

Keywords: Neo-Goodwinian theory; cyclical growth; labor productivity; secular stagnation (search for similar items in EconPapers)
JEL-codes: E12 E25 E32 J50 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2024-01
New Economics Papers: this item is included in nep-hme, nep-lab, nep-mac and nep-pke
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Persistent link: https://EconPapers.repec.org/RePEc:new:wpaper:2403

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