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Bowley’S Law: The Diffusion Of An Empirical Supposition Into Economic Theory

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  • Hagen M. Krämer

Abstract

The share of labour income in national product has declined in many advanced economies over the past 30 years or so. However, many economists are still convinced that the wage share remains more or less constant in the long run. This notion of the long-term relative stability of the wage share is considered to be a stylized fact, or even sometimes referred to as a “law of economics”. This paper attempts to show how the alleged stability of the labour share of income became known as one of the “great magnitudes in economics”. It also shows how this “law” made its way into the three major theories of macroeconomic income distribution, i.e. neoclassical, postKeynesian, and Kaleckian distribution theory. Since the data actually reveal strong fluctuations of aggregate income shares over time, the conclusion has to be drawn that the major macroeconomic theories of growth and distribution are built around an invalid –or at least highly questionable– assumption about the real world.

Suggested Citation

  • Hagen M. Krämer, 2011. "Bowley’S Law: The Diffusion Of An Empirical Supposition Into Economic Theory," Cahiers d’économie politique / Papers in Political Economy, L'Harmattan, issue 61, pages 19-50.
    • Handle: RePEc:cpo:journl:y:2011:i:61:p:19-50
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    Citations

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    Cited by:

    1. Ivan D. Trofimov, 2019. "Stability of Labour Shares: Evidence from OECD Economies," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 17(1), pages 57-89.
    2. Charpe, Matthieu & Bridji, Slim & Mcadam, Peter, 2020. "Labor Share And Growth In The Long Run," Macroeconomic Dynamics, Cambridge University Press, vol. 24(7), pages 1720-1757, October.
    3. Trofimov, Ivan D. & Md. Aris, Nazaria & Bin Rosli, Muhammad K. F., 2018. "Macroeconomic Determinants of the Labour Share of Income: Evidence from OECD Economies," MPRA Paper 85597, University Library of Munich, Germany.
    4. D., Ivan, 2017. "Stability of the labour shares: evidence from OECD economies," MPRA Paper 79822, University Library of Munich, Germany.
    5. Ivan D. TROFIMOV & Nazaria Md. ARIS & Muhammad Khairil Firdaus Bin ROSLI, 2018. "Macroeconomic determinants of the labour share of income: Evidence from OECD economies," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(616), A), pages 25-48, Autumn.
    6. Pu Chen, 2024. "Vector Error Correction Models with Stationary and Nonstationary Variables," Economic Analysis Letters, Anser Press, vol. 3(2), pages 34-47, June.
    7. José Alves & Francisco Baptista & José Carlos Coelho, 2024. "The impact of labor share on economic growth: a panel data analysis for European Union," Working Papers REM 2024/0319, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.

    More about this item

    Keywords

    Aggregate Factor Income Distribution. Wage share. Bowley’s Law. Macroeconomic income distribution theories;

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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