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The Factor-Shares Cycle and its Relation to the Business Cycle

In: Business Cycles in Economics: Types, Challenges and Impacts on Monetary Policies

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  • Jackson, William A.

Abstract

The traditional assumption of constant factor shares (Bowley’s Law) may be misleading, for factor shares do vary in both the short run and the long run. The present chapter looks at short-run factor share movements, asking how they relate to the business cycle. Theoretical arguments differ about whether profit and wage shares are procyclical or counter-cyclical, and empirical evidence too yields no neat conclusions. On average, factor share movements roughly offset each other while adhering to a factor-shares cycle, which has similar periodicity to the business cycle but is out of phase with it – the profit share reaches a peak before the top of the cycle and a trough before the bottom of the cycle. Recent experience in developed countries, marked by financialisation, a rising profit share and financially induced recession, has changed the factor-shares cycle. Pressure on the wage share has softened profit squeezes and shifted the cycle towards an underconsumption mode with a procyclical profit share and greater risks of financial instability.

Suggested Citation

  • Jackson, William A., 2014. "The Factor-Shares Cycle and its Relation to the Business Cycle," EconStor Open Access Book Chapters, in: Business Cycles in Economics: Types, Challenges and Impacts on Monetary Policies, pages 11-26, ZBW - Leibniz Information Centre for Economics.
    • Handle: RePEc:zbw:eschap:275667
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    References listed on IDEAS

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    More about this item

    Keywords

    factor shares; business cycles; financialisation; underconsumption; financial instability;
    All these keywords.

    JEL classification:

    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • 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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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