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Capitalists, workers, and managers: Wage inequality and effective demand

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  • Tavani, Daniele
  • Vasudevan, Ramaa

Abstract

We present a simple three-class model in the Kaleckian tradition to investigate the implications of a dominant managerial class for the dynamics of demand and distribution. Managers play a peculiar role in the economy, both because of their supervisory function – which results in surplus extraction and wage inequality – and because of their saving behavior. The adjustment of capacity utilization to accommodate goods market disequilibrium produces two distinct regimes with respect to the responsiveness of investment demand to profitability: a low investment-response regime, where effective demand appears to be both wage-led and inequality-led; and a high investment-response regime, where demand looks profit-led. In accordance with recent empirical evidence for the US, we introduce distributional dynamics that hinge on inequality squeezing workers’ wage growth. We find that the low investment-responsiveness regime produces a stable demand-distribution equilibrium only if the wage squeeze effect is relatively small. On the other hand, the equilibrium in the high investment-response regime is saddle-path stable. The main distributional implication of the wage squeeze and inequality is that the effect of redistribution toward workers in both the low investment response regime and the high investment response regime leads to declining inequality and capacity utilization. Hence, in both regimes, the inequality-led features of the equilibrium dominate the wage-led or profit-led nature of effective demand. These findings imply that distributive dynamics lead to a stronger basis for cohesion in the interests of managers and capitalists compared to workers and managers.

Suggested Citation

  • Tavani, Daniele & Vasudevan, Ramaa, 2014. "Capitalists, workers, and managers: Wage inequality and effective demand," Structural Change and Economic Dynamics, Elsevier, vol. 30(C), pages 120-131.
    • Handle: RePEc:eee:streco:v:30:y:2014:i:c:p:120-131
    DOI: 10.1016/j.strueco.2014.05.001
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    2. Soon Ryoo, 2016. "Inequality of Income and Wealth in the Long Run: A Kaldorian Perspective," Metroeconomica, Wiley Blackwell, vol. 67(2), pages 429-457, May.
    3. Amitava Krishna Dutt, 2017. "Heterodox Theories Of Economic Growth And Income Distribution: A Partial Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1240-1271, December.
    4. Stefan Ederer & Miriam Rehm, 2021. "Wealth inequality and aggregate demand," Metroeconomica, Wiley Blackwell, vol. 72(2), pages 405-424, May.
    5. Dutt, Amitava Krishna & Veneziani, Roberto, 2020. "A Classical Model Of Education, Growth, And Distribution," Macroeconomic Dynamics, Cambridge University Press, vol. 24(5), pages 1186-1221, July.
    6. Shogo Ogawa, 2019. "Dynamic analysis of a disequilibrium macroeconomic model with dual labor markets," Metroeconomica, Wiley Blackwell, vol. 70(3), pages 525-550, July.
    7. Prante, Franz J., 2017. "Macroeconomic effects of personal and functional income inequality: Theory and empirical evidence for the US and Germany," IPE Working Papers 83/2017, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    8. Rudiger Arnim & Daniele Tavani & Laura Carvalho, 2014. "Redistribution in a Neo-Kaleckian Two-country Model," Metroeconomica, Wiley Blackwell, vol. 65(3), pages 430-459, July.
    9. Tonni, Lorenzo, 2021. "Personal income distribution and the endogeneity of the demand regime," MPRA Paper 108298, University Library of Munich, Germany.
    10. André Cieplinski, 2017. "Employee Control, Work Content and Wages," Department of Economics University of Siena 775, Department of Economics, University of Siena.
    11. Barbieri Góes, Maria Cristina, 2019. "Personal income distribution and progressive taxation in a neo-Kaleckian model: Insights from the Italian case," IPE Working Papers 126/2019, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    12. Mark Setterfield, 2024. "The Kalecki-Robinson Tradition in Post-Keynesian Growth Theory," Working Papers 2402, New School for Social Research, Department of Economics.
    13. Parui, Pintu, 2021. "The Macroeconomic Effects of Financialization and the Wage Gap between Blue and White Collar Workers," Structural Change and Economic Dynamics, Elsevier, vol. 58(C), pages 416-443.
    14. Laura Carvalho & Armon Rezai, 2016. "Personal income inequality and aggregate demand," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 40(2), pages 491-505.
    15. Stamegna, Marco, 2022. "Wage inequality and induced innovation in a classical-Marxian growth model," MPRA Paper 113805, University Library of Munich, Germany.
    16. Ryunosuke Sonoda & Hiroaki Sasaki, 2019. "Differences in wage-determination systems between regular and non-regular employment in a Kaleckian model," Review of Keynesian Economics, Edward Elgar Publishing, vol. 7(3), pages 341-360, July.
    17. Dögüs, Ilhan, 2021. "Production structure, output and profits - A note," ZÖSS-Discussion Papers 88, University of Hamburg, Centre for Economic and Sociological Studies (CESS/ZÖSS).

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    More about this item

    Keywords

    Effective demand; Capacity utilization; Wage inequality; Stability;
    All these keywords.

    JEL classification:

    • B5 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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