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Not “wage-led” versus “profit-led,” but investment-led versus consumption-led growth

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  • Paulo L. Dos Santos

Abstract

This paper offers a critique of the concepts of “wage-led” and “profit-led” growth based on an application of the circuit of capital macroeconomic framework. Wages are shares of capital outlays sustaining production and circulation of goods; profits are shares of sales. This ensures that the functional distribution of income and the level of output are jointly conditioned by the measure of aggregate demand relative to capital outlays. It is spurious to attribute causal significance to associations between functional distribution and output. The paper develops a series of comparative exercises to consider the relationships between the real wage, output, and distribution once functional income flows are understood not as a sharing of output but in relation to the expenditures funding them. This generalizes and challenges neo-Kaleckian appreciations of those relationships. Finally, the paper advances a new analytical and policy taxonomy concerning growth and distribution, centered on the distinction between the consumption-led regimes recently experienced by the United States, Britain, and many middle-income economies, and alternative investment-led growth regimes that may support the high-growth, high-wage-share evolutions sought by adherents of “wage-led” growth.

Suggested Citation

  • Paulo L. Dos Santos, 2015. "Not “wage-led” versus “profit-led,” but investment-led versus consumption-led growth," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 37(4), pages 661-686, May.
    • Handle: RePEc:mes:postke:v:37:y:2015:i:4:p:661-686
    DOI: 10.1080/01603477.2015.1000124
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    Cited by:

    1. 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.
    2. A Heise, 2020. "Wage-led and profit-led regime research – promising scientific research programme or scientific cul-de-sac?," Economic Issues Journal Articles, Economic Issues, vol. 25(2), pages 31-49, September.
    3. Stephen Thompson, 2018. "Employment and fiscal policy in a Marxian model," Metroeconomica, Wiley Blackwell, vol. 69(4), pages 820-846, November.

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