Profit maximizing goes global: the race to the bottom

Kiefer, David; Rada, Codrina

Profit maximizing goes global: the race to the bottom

David Kiefer and Codrina Rada

Working Paper Series, Department of Economics, University of Utah from University of Utah, Department of Economics

Abstract: We explore four decades of cyclical and long-run dynamics in income distribution and economic activity for a panel of thirteen OECD countries, as measured by the wage share and the output gap. When modeled as a Goodwin model, our results suggest that economic activity is weakly profit-led and that the wage share is pro-cyclical. Our estimated model is dynamically stable and has a long-run equilibrium in distribution-utilization space. An extension of the model suggests that this equilibrium has been shifting south-west towards a lower wage share and a loss of economic activity. This finding is suggestive of a coordination failure among industrialized nations; it could be that the governments of these countries are engaging in a race to the bottom in terms of the wage share; it may even be that this race has the undesirable consequence of decreasing economic efficiency.

Keywords: predator-prey models; distributive-demand dynamics; panel data estimation; JEL Classification: D3, C23, C61 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Journal Article: Profit maximising goes global: the race to the bottom (2015)
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