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Wage-led growth: theory, evidence, policy

  • Engelbert Stockhammer

    (Kingston University)

  • Ozlem Onaran

    (University of Greenwich)

The paper provides an overview of the concept of wage-led growth, both as an analytical concept and as an economic policy strategy. At the core of our analysis is the distinction between wage-led and profit-led demand regimes. The Kaleckian tradition in macroeconomics asserts that a higher wage share will have expansionary effects. Bhaduri and Marglin (1990) generalize the model by allowing for classical mechanisms. The paper presents a two-country short run model to clarify the key concepts surrounding a wage-led vs a profit-led demand regime. It distinguishes carefully between partial and total effects and it analyses demand regimes with respect to national as well as international changes in the wage share. We also review the empirical literature. Our reading is that the available evidence indicates that demand in most economies is domestically wage-led. Changes in functional income distribution also have supply-side effects. Available evidence suggests that higher wage growth induces higher productivity growth. Neoliberalism resulted in an increase in inequality and a decline in the wage share, but growth has nowhere been based on the profit-led growth process. Rather neoliberalism has given rise to either debt-led or export-led growth regimes. The paper concludes by outlining a wage-led growth strategy and by discussing its limitations.

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Article provided by Edward Elgar in its journal Review of Keynesian Economics.

Volume (Year): 1 (2013)
Issue (Month): 1 (January)
Pages: 61-78

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Handle: RePEc:elg:rokejn:v:1:y:2013:i:1:p61-78
Contact details of provider: Web page: http://www.elgaronline.com/roke

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  1. Eckhard Hein & Lena Vogel, 2008. "Distribution and growth reconsidered: empirical results for six OECD countries," Cambridge Journal of Economics, Oxford University Press, vol. 32(3), pages 479-511, May.
  2. Engelbert Stockhammer & Eckhard Hein & Lucas Grafl, 2011. "Globalization and the effects of changes in functional income distribution on aggregate demand in Germany," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(1), pages 1-23.
  3. Eckhard Hein, 2005. "Interest, debt and capital accumulation - a Kaleckian approach," IMK Working Paper 05-2005, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  4. Eckhard Hein & Artur Tarassow, 2010. "Distribution, aggregate demand and productivity growth: theory and empirical results for six OECD countries based on a post-Kaleckian model," Cambridge Journal of Economics, Oxford University Press, vol. 34(4), pages 727-754.
  5. Hein, Eckhard & Truger, Achim, 2010. "Finance-dominated capitalism in crisis: The case for a Global Keynesian New Deal," IPE Working Papers 06/2010, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
  6. Aghion, Philippe & Caroli, Eve & García-Peñalosa, Cecilia, 1999. "Inequality and Economic Growth: The Perspective of the New Growth Theories," Scholarly Articles 12502063, Harvard University Department of Economics.
  7. Engelbert Stockhammer & Özlem Onaran & Stefan Ederer, 2007. "Functional income distribution and aggregate demand in the Euro-area," Department of Economics Working Papers wuwp102, Vienna University of Economics and Business, Department of Economics.
  8. Ozlem Onaran, 2011. "From wage suppression to sovereign debt crisis in Western Europe: who pays for the costs of the crisis?," International Journal of Public Policy, Inderscience Enterprises Ltd, vol. 7(1/2/3), pages 51-69.
  9. Arjun Jayadev, 2007. "Capital account openness and the labour share of income," Cambridge Journal of Economics, Oxford University Press, vol. 31(3), pages 423-443, May.
  10. Rudiger von Arnim & Daniele Tavani & Laura Barbosa de Carvalho, 2012. "Globalization as coordination failure: A Keynesian perspective," Working Papers 1202, New School for Social Research, Department of Economics.
  11. J. E. King, 2002. "A History of Post Keynesian Economics since 1936," Books, Edward Elgar, number 2135, 6.
  12. repec:cup:cbooks:9780521868273 is not listed on IDEAS
  13. Hein, Eckhard & Mundt, Matthias, 2012. "Financialisation and the requirements and potentials for wage-led recovery : a review focussing on the G20," ILO Working Papers 470932, International Labour Organization.
  14. Robert A. Blecker, 2010. "Open economy models of distribution and growth," Working Papers 2010-03, American University, Department of Economics.
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