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Is There an Equilibrium Rate of Unemployment in the Long Run?

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  • Engelbert Stockhammer

    ()
    (Department of Economics, Vienna University of Economics & B.A.)

Abstract

Distinguishing between profit led and growth led demand regimes, we analyze the conditions of existence and stability of long run equilibrium of unemployment. The model we employ has at its center the relation between growth and distribution. Growth can be either wage led or profit led. Distribution itself is a function of the unemployment rate, with higher unemployment leading to a higher profit share. We use Okun's Law to close the model, making the change of the rate of unemployment a function of growth. The interesting result of our analysis is that in profit led demand regime the short run and long run equilibrium are stable. However, if the demand regime is wage led, the same conditions that guarantee stability of the goods market equilibrium in the short run render impossible the existence of a long run equilibrium rate of unemployment, and vice versa. Thus, if Kalecki's proposition that higher wages lead to higher growth is true, there will be no equilibrium rate of unemployment in the long run that serves as an anchor for the economic system. A revised version of the paper is forthcoming in the Review of Political Economy. Please contact the author for the revised version.

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Bibliographic Info

Paper provided by Vienna University of Economics Research Group: Growth and Employment in Europe: Sustainability and Competitiveness in its series Working Papers with number geewp10.

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Date of creation: Feb 2000
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Handle: RePEc:wiw:wiwgee:geewp10

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Keywords: growth theory; unemployment; keynesian economics;

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References

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  1. Dani Rodrik, 1998. "Where Did All The Growth Go? External Shocks, Social Conflict, and Growth Collapses," NBER Working Papers 6350, National Bureau of Economic Research, Inc.
  2. Blanchflower, D. & Oswald, A., 1989. "The Wage Curve," Papers 340, London School of Economics - Centre for Labour Economics.
  3. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March.
  4. E. Yndgaard & Palle S. Andersen & Marc Klau, 1999. "Higher profits and lower capital prices: is factor allocation optimal?," BIS Working Papers 65, Bank for International Settlements.
  5. Engelbert Stockhammer, 1999. "Robinsonian and Kaleckian Growth. An Update on Post-Keynesian Growth Theories," Department of Economics Working Papers wuwp067, Vienna University of Economics, Department of Economics.
  6. C Bean, 1992. "European Unemployment: A Survey," CEP Discussion Papers dp0071, Centre for Economic Performance, LSE.
  7. Nickell, Stephen, 1998. "Unemployment: Questions and Some Answers," Economic Journal, Royal Economic Society, vol. 108(448), pages 802-16, May.
  8. Dutt, Amitava Krishna, 1992. "Conflict inflation, distribution, cyclical accumulation and crises," European Journal of Political Economy, Elsevier, vol. 8(4), pages 579-597, December.
  9. Dutt, Amitava Krishna, 1984. "Stagnation, Income Distribution and Monopoly Power," Cambridge Journal of Economics, Oxford University Press, vol. 8(1), pages 25-40, March.
  10. Sen, Anindya & Dutt, Amitava Krishna, 1995. "Wage bargaining, imperfect competition and the markup: Optimizing microfoundations," Economics Letters, Elsevier, vol. 48(1), pages 15-20, April.
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Citations

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Cited by:
  1. Hiroaki Sasaki, 2013. "Cyclical growth in a Goodwin–Kalecki–Marx model," Journal of Economics, Springer, vol. 108(2), pages 145-171, March.
  2. Vasiliki Bozani, 2011. "NAIRU, Unemployment and Post Keynesian Economics," Working Papers 1105, University of Crete, Department of Economics.
  3. Christian R. Proaño & Peter Flaschel & Hans-Martin Krolzig & Mamadou Bobo Diallo, 2011. "Monetary policy and macroeconomic stability under alternative demand regimes," Cambridge Journal of Economics, Oxford University Press, vol. 35(3), pages 569-585.
  4. Eckhard Hein & Marc Lavoie & Till van Treeck, 2011. "Some instability puzzles in Kaleckian models of growth and distribution: a critical survey," Cambridge Journal of Economics, Oxford University Press, vol. 35(3), pages 587-612.
  5. Sasaki, Hiroaki, 2010. "Endogenous technological change, income distribution, and unemployment with inter-class conflict," Structural Change and Economic Dynamics, Elsevier, vol. 21(2), pages 123-134, May.
  6. Eckhard Hein & Achim Truger, 2008. "Fiscal policy in the macroeconomic policy mix: A Critique of the New Consensus Model and a comparison of macroeconomic policies in France, Germany, the UK and Sweden from a Post-Keynesian perspective," IMK Working Paper 03-2008, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  7. Basak Kus, 2012. "Financialisation and Income Inequality in OECD Nations:1995-2007," The Economic and Social Review, Economic and Social Studies, vol. 43(4), pages 477-495.
  8. Osmar Leandro Loaiza Quintero, 2012. "La demanda agregada y la distribución del ingreso: un estudio a partir de los modelos de crecimiento kaleckianos," REVISTA CUADERNOS DE ECONOMÍA, UN - RCE - CID.
  9. Sasaki, Hiroaki, 2012. "Is the long-run equilibrium wage-led or profit-led? A Kaleckian approach," Structural Change and Economic Dynamics, Elsevier, vol. 23(3), pages 231-244.
  10. Hiroaki Sasaki, 2008. "Endogenous Technological Change and Distribution with Inter-Class Conflict: A Kaleckian Model of Growth," TERG Discussion Papers 237, Graduate School of Economics and Management, Tohoku University.
  11. Engelbert Stockhammer, 2005. "Arbeitsmarktrigiditäten Oder Nachfragemangel? Die Ursachen Der Arbeitslosigkeit In Europa," Working Papers geewp45, Vienna University of Economics Research Group: Growth and Employment in Europe: Sustainability and Competitiveness.
  12. Eckhard Hein & Achim Truger, 2006. "Germany's post-2000 stagnation in the European context - a lesson in macroeconomic mismanagement," IMK Working Paper 03-2006, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  13. Hiroaki Sasaki, 2011. "Is the Long-run Equilibrium Wage-led or Profit-led? A Kaleckian Approach," Discussion papers e-11-002, Graduate School of Economics Project Center, Kyoto University.
  14. Eckhard Hein & Christian Schoder, 2011. "Interest rates, distribution and capital accumulation -- A post-Kaleckian perspective on the US and Germany," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(6), pages 693-723, November.
  15. Hiroaki SASAKI, 2009. "Cyclical Growth in a Goodwin-Kalecki-Marx Model," TERG Discussion Papers 246, Graduate School of Economics and Management, Tohoku University.
  16. repec:hal:cesptp:halshs-00196500 is not listed on IDEAS
  17. repec:hal:journl:halshs-00196500 is not listed on IDEAS

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