Overhead labour and feedback effects between capacity utilization and income distribution: estimations for the USA economy

Lilian Rolim

International Review of Applied Economics, 2019, vol. 33, issue 6, 756-773

Abstract: Empirical studies on the USA have not reached a consensus on whether its demand is wage- or profit-led, leading many scholars to scrutinize what drives the empirical results. This article tests two possible explanations for profit-led results which are related to the presence of overhead labour. To do so, a vector autoregression model is estimated for the USA from 1964 to 2010 and the wage share is split between supervisors/managers and direct workers. The results support the argument that the income redistribution away from workers and towards managers increased the likelihood of profit-led demand and suggest that an increase in the workers’ share of income would stimulate the economy. Also, increases in capacity utilization negatively affect the supervisors’ share, so that short-run profit-led results may be capturing the cyclical behaviour of the profit share, but the effect becomes positive as time goes by, suggesting a complex determination of functional income distribution, as capacity utilization affects it in ambiguous ways.

Date: 2019
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DOI: 10.1080/02692171.2019.1595544

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