Do Profits Affect Investment and Employment? An Empirical Test Based on the Bhaduri-Marglin Model

This chapter aims at clarifying the macroeconomic effect of changes in functional income distribution empirically for a range of developed and developing countries. In doing so, our goal is to discuss the crucial policy issues related with neoliberal policies in the developing, as well as developed countries in the post-1980 era; by focusing on the effects of distributional policies we seek to contribute to the explanation of the reasons for the stagnant accumulation and employment growth rates. Both the structural adjustment agenda in the developing countries, and the debate about the European unemployment have been cases where mainstream economics has pushed for policy changes favouring a pro-capital redistribution of income, and a deregulation of the labour market. For neoclassical economics unemployment is, in the last instance, a labour market phenomenon. It is due to ‘too high’ real wages, which in turn are a result of so-called labour market ‘distortions’, like labour market regulations and trade unions. In contrast, Post-Keynesians argue that unemployment is the result of demand deficiencies on the goods markets, and that the latter result particularly from a slowdown in investments.