Income Distribution, Productivity Growth and Workers's Bargaining Power in an Agent-Based Macroeconomic Model

Lilian Rolim, Carolina Baltar and Gilberto Lima

No 2021_27, Working Papers, Department of Economics from University of São Paulo (FEA-USP)

Abstract: We investigate the effect of labor productivity growth and workers's bargaining power on income distribution in a novel agent-based macroeconomic model mostly inspired by the post-Keynesian literature. Its main novelties are a wage bargaining process and a mark-up adjustment rule featuring a broader set of dimensions and coupled channels of interaction. The former allows nominal wages to be endogenously determined by interactions involving firms and workers, which are mediated by workers's bargaining power. The latter assumes that firms also consider their position relative to workers (through their unit costs) to set their mark-up rates, thus linking the evolution of nominal wages in the bargaining process and labor productivity growth to the functional income distribution. This has implications for the personal income distribution through a three-class structure for households. The model reproduces numerous stylized facts, including those concerning the income distribution dynamics. By capturing the inherent social conflict over the distribution of income, our results show the importance of the coevolutionary interaction between workers's bargaining power and productivity growth to the dynamics of income inequality and to its relationship with output. This leads to a policy dilemma between promoting productivity growth and improving income equality which can, nonetheless, be attenuated by combining policies and institutions that sustain workers's strength with policies that stimulate technological innovation and productivity growth.

Keywords: Agent-based modeling; labor productivity; wage bargaining; personal income inequality; functional income inequality (search for similar items in EconPapers)
JEL-codes: C63 D31 D33 E2 (search for similar items in EconPapers)
Date: 2021-11-23, Revised 2021-11-30
New Economics Papers: this item is included in nep-cmp, nep-lab, nep-mac and nep-pke
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Income distribution, productivity growth, and workers’ bargaining power in an agent-based macroeconomic model (2023)
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