Growth is wage-led in the long run

Jose Barrales-Ruiz (), Ivan Mendieta-Muñoz, Codrina Rada and Rudiger von Arnim ()
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Jose Barrales-Ruiz: Center of Economics for Sustainable Development (CEDES), Faculty of Economics and Government, Universidad San Sebastian, Chile.
Rudiger von Arnim: Department of Economics, University of Utah, USA

No 2505, Working Papers from New School for Social Research, Department of Economics

Abstract: The literature on the empirical linkages between economic growth (or other measures of macroeconomic performance) and the functional distribution of income is copious on the short run. The sustained and simultaneous decline in average rates of real GDP growth and the labor share of income in the US in recent decades has led to renewed interest in the long run, in light of the hypothesis of inequality-induced secular stagnation. This paper employs a vector error correction model with time-varying parameters and stochastic volatility to estimate the long run interaction between real GDP growth, labor share and the unemployment rate. Our key result indicates that a lower labor share is associated with a decline in the growth rate: economic growth is wage-led in the long run.

Keywords: Growth and distribution; stagnation; demand regime (search for similar items in EconPapers)
JEL-codes: C32 E12 E25 E32 O40 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2025-04
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