Profit maximizing goes global: the race to the bottom
David Kiefer and
Working Paper Series, Department of Economics, University of Utah from University of Utah, Department of Economics
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
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Journal Article: Profit maximising goes global: the race to the bottom (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:uta:papers:2013_05
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