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Distribution-utilization interactions: a race to the bottom among OECD countries

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  • Codrina Rada
  • David Kiefer

Abstract

We explore four decades of short and long run interactions between income distribution and real economic activity for a panel of OECD countries. Allowing for predator-prey dynamics, we find a convergent, rather than persistent, cycle exhibiting profit-led dynamics. Our regressions suggest that the dynamic interaction of these two variables is rather complicated. Estimating the long run point, we argue that this equilibrium has been shifting as a matter of public policy. We hypothesize that a race to the bottom arises from a need to be competitive in globalized markets. We report evidence that globalization does have a negative long-run effect on the wage share, and perhaps a positive effect on utilization. We also find that other factors have been important: unionization has been pro-labor, while contractionary monetary policy and R&D spending have been anti-labor.

Suggested Citation

  • Codrina Rada & David Kiefer, 2013. "Distribution-utilization interactions: a race to the bottom among OECD countries," Working Paper Series, Department of Economics, University of Utah 2013_13, University of Utah, Department of Economics.
    • Handle: RePEc:uta:papers:2013_13
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    2. Heshmati, Almas & Kim, Jungsuk, 2014. "A Survey of the Role of Fiscal Policy in Addressing Income Inequality, Poverty Reduction and Inclusive Growth," IZA Discussion Papers 8119, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    predator-prey models; distributive-demand dynamics; panel data estimation JEL Classification: D3; C23;
    All these keywords.

    JEL classification:

    • D3 - Microeconomics - - Distribution
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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