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An exploration of neo-Goodwinian theory of cyclical growth

Author

Listed:
  • Codrina Rada

    (Department of Economics, University of Utah, USA)

  • Ansel Shiavone

    (Department of Economics, St. John's University, USA)

  • Rudiger von Arnim

    (Department of Economics, University of Utah, USA)

Abstract

Neo-Goodwinian theory builds on and extends the classical growth cycle (Goodwin, 1967). It facilitates investigation of short run business cycles and long run economic growth in a unified framework. This paper makes two contributions. First, we summarize recent research on a Keynesian distributive cycle in income-capital ratio, employment rate and labor share. This model generates the Goodwin pattern (short run counter-clockwise cycles in activity-labor share planes) with the Goodwin mechanism (profit-led activity and profit squeeze distribution). Further, the natural rate of growth is wage-led through a positive effect of the labor share on labor productivity growth. The connection of short run profit-led cycles and long run wage-led growth allows for a nuanced discussion of relevant constraints and trade-offs. Second, we respond to renewed criticism that the Goodwin pattern is an artefact of pro-cyclical labor productivity. To clarify this debate, we demonstrate that a two-dimensional model in income-capital ratio and labor share with pro-cyclical labor productivity cannot generate the Goodwin pattern, unless it also features a sufficiently strong Goodwin mechanism. Extending the baseline three-dimensional Keynesian distributive cycle with pro-cyclical labor productivity does not alter key conclusions concerning short run profit led cycles and long run wage led growth.

Suggested Citation

  • Codrina Rada & Ansel Shiavone & Rudiger von Arnim, 2024. "An exploration of neo-Goodwinian theory of cyclical growth," Working Papers 2403, New School for Social Research, Department of Economics.
    • Handle: RePEc:new:wpaper:2403
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    References listed on IDEAS

    as
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    3. Ivan Mendieta‐Muñoz & Codrina Rada & Rudi von Arnim, 2021. "The Decline of the US Labor Share Across Sectors," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 67(3), pages 732-758, September.
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    More about this item

    Keywords

    Neo-Goodwinian theory; cyclical growth; labor productivity; secular stagnation;
    All these keywords.

    JEL classification:

    • 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
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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