Wage- vs. profit-led growth: the role of the distribution of wages in determining regime character

Thomas Palley

Cambridge Journal of Economics, 2017, vol. 41, issue 1, 49-61

Abstract: 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.

Keywords: Wage-led; Profit-led; Wage distribution; Personal income distribution (search for similar items in EconPapers)
JEL-codes: E12 O33 O41 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (22)

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