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Wage share, capacity utilization, and demand regimes in the U.S. economy

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  • Umann, Rafael da Costa
  • Worm, Guilherme de Oliveira

Abstract

This study examines the relationship between the wage share and capacity utilization in the United States from 1948 to 2024, with emphasis on the historical evolution of wage-led and profit-led demand regimes. A time-varying parameter VAR (TVP-VAR) is used to capture gradual changes in the interaction between functional income distribution and aggregate demand, overcoming the limits of constant-parameter models. The results indicate that the effect of the wage share on capacity utilization changed over time, revealing historically contingent demand regimes. A profit-led pattern prevailed until the early 1990s, though it had already begun to weaken in the mid-1970s. Since the 2008 financial crisis, the evidence points to a renewed wage-led tendency, particularly in specifications with richer controls for domestic demand.

Suggested Citation

  • Umann, Rafael da Costa & Worm, Guilherme de Oliveira, 2026. "Wage share, capacity utilization, and demand regimes in the U.S. economy," Structural Change and Economic Dynamics, Elsevier, vol. 80(C), pages 96-110.
    • Handle: RePEc:eee:streco:v:80:y:2026:i:c:p:96-110
    DOI: 10.1016/j.strueco.2026.07.002
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    Keywords

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    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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