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Capitalists, Workers, and Managers: Wage Inequality and Effective Demand

Author

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  • Daniele Tavani

    () (Department of Economics, Colorado State University)

  • Ramaa Vasudevan

    () (Department of Economics, Colorado State University)

Abstract

We present a simple three-class model in the Kaleckian tradition to investigate the implications of a dominant managerial class class for the dynamics of demand and distribution. Managers are hired by capitalists to supervise workers, but supervision results in surplus extraction and wage inequality. The adjust- ment of capacity utilization to accommodate goods market disequilibrium produces two distinct regimes with respect to the responsiveness of investment demand to profitability: a low investment–response regime, where effective demand is both wage–led and inequality–led; and a high investment–response regime, where demand is profit–led. In accordance with recent empirical evidence for the US, we then introduce distributive dynamics that hinge on inequality squeezing workers’ wage growth. We find that the low investment–responsiveness regime produces a stable demand–distribution equilibrium only if the wage squeeze effect is relatively small. On the other hand, an equilibrium in the high investment–response regime is saddle–path stable. The main distributional implication of the wage squeeze produced by inequality is that the effect of redistribution toward workers in both the low-investment response regime and and the high investment response regime leads to declining inequality and capacity utilization. Hence, in both regimes, the inequality–led character of the equilibrium overcomes the stagnationist or exhilarationist features of effective demand. These findings imply that distributive dynamics lead to a stronger basis for cohesion in the interests of managers and capitalists compared to workers and managers.

Suggested Citation

  • Daniele Tavani & Ramaa Vasudevan, 2012. "Capitalists, Workers, and Managers: Wage Inequality and Effective Demand," Working Papers 1207, New School for Social Research, Department of Economics.
  • Handle: RePEc:new:wpaper:1207
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Ryoo, Soon, 2015. "Inequality of income and wealth in the long run: A Kaldorian perspective," UMASS Amherst Economics Working Papers 2015-09, University of Massachusetts Amherst, Department of Economics.
    2. Prante, Franz J., 2017. "Macroeconomic effects of personal and functional income inequality: Theory and empirical evidence for the US and Germany," IPE Working Papers 83/2017, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    3. Rudiger Arnim & Daniele Tavani & Laura Carvalho, 2014. "Redistribution in a Neo-Kaleckian Two-country Model," Metroeconomica, Wiley Blackwell, vol. 65(3), pages 430-459, July.
    4. André Cieplinski, 2017. "Employee Control, Work Content and Wages," Department of Economics University of Siena 775, Department of Economics, University of Siena.
    5. Amitava Krishna Dutt & Roberto Veneziani, 2017. "A Classical Model of Education, Growth and Distribution," Working Papers 815, Queen Mary University of London, School of Economics and Finance.
    6. Soon Ryoo, 2016. "Inequality of Income and Wealth in the Long Run: A Kaldorian Perspective," Metroeconomica, Wiley Blackwell, vol. 67(2), pages 429-457, May.
    7. Ogawa, Shogo, 2018. "Dynamic Analysis of a Disequilibrium Macroeconomic Model with Dual Labor Markets," MPRA Paper 84107, University Library of Munich, Germany.
    8. Laura Carvalho & Armon Rezai, 2016. "Personal income inequality and aggregate demand," Cambridge Journal of Economics, Oxford University Press, vol. 40(2), pages 491-505.
    9. Ryunosuke Sonoda & Hiroaki Sasaki, 2015. "Differences in Wage-Determination Systems between Regular and Non-Regular Employment in a Kaleckian Model," Discussion papers e-14-018, Graduate School of Economics Project Center, Kyoto University.

    More about this item

    Keywords

    Effective Demand; Capacity Utilization; Wage Inequality; Stability;

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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