IDEAS home Printed from https://ideas.repec.org/p/new/wpaper/2505.html
   My bibliography  Save this paper

Growth is wage-led in the long run

Author

Listed:
  • Jose Barrales-Ruiz

    (Center of Economics for Sustainable Development (CEDES), Faculty of Economics and Government, Universidad San Sebastian, Chile.)

  • Ivan Mendieta-Muñoz

    (Department of Economics, University of Utah, USA)

  • Codrina Rada

    (Department of Economics, University of Utah, USA)

  • Rudiger von Arnim

    (Department of Economics, University of Utah, USA)

Abstract

The literature on the empirical linkages between economic growth (or other measures of macroeconomic performance) and the functional distribution of income is copious on the short run. The sustained and simultaneous decline in average rates of real GDP growth and the labor share of income in the US in recent decades has led to renewed interest in the long run, in light of the hypothesis of inequality-induced secular stagnation. This paper employs a vector error correction model with time-varying parameters and stochastic volatility to estimate the long run interaction between real GDP growth, labor share and the unemployment rate. Our key result indicates that a lower labor share is associated with a decline in the growth rate: economic growth is wage-led in the long run.

Suggested Citation

  • Jose Barrales-Ruiz & Ivan Mendieta-Muñoz & Codrina Rada & Rudiger von Arnim, 2025. "Growth is wage-led in the long run," Working Papers 2505, New School for Social Research, Department of Economics.
    • Handle: RePEc:new:wpaper:2505
    as

    Download full text from publisher

    File URL: http://www.economicpolicyresearch.org/econ/2025/NSSR_WP_052025.pdf
    File Function: First version, 2025
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Robert A. Blecker, 2016. "Wage-led versus profit-led demand regimes: the long and the short of it," Review of Keynesian Economics, Edward Elgar Publishing, vol. 4(4), pages 373-390, October.
    2. Koop, Gary & Leon-Gonzalez, Roberto & Strachan, Rodney W., 2011. "Bayesian inference in a time varying cointegration model," Journal of Econometrics, Elsevier, vol. 165(2), pages 210-220.
    3. Shah, Anup & Desai, Meghnad, 1981. "Growth Cycles with Induced Technical Change," Economic Journal, Royal Economic Society, vol. 91(364), pages 1006-1010, December.
    4. Sims, Christopher A., 1988. "Bayesian skepticism on unit root econometrics," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 463-474.
    5. Eckhard Hein, 2016. "Secular stagnation or stagnation policy? A post-Steindlian view," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 13(2), September.
    6. Marc Lavoie, 1996. "Traverse, Hysteresis, and Normal Rates of Capacity Utilization in Kaleckian Models of Growth and Distribution," Review of Radical Political Economics, Union for Radical Political Economics, vol. 28(4), pages 113-147, December.
    7. Francesco Furlanetto & Antoine Lepetit & Ørjan Robstad & Juan Rubio-Ramírez & Pål Ulvedal, 2025. "Estimating Hysteresis Effects," American Economic Journal: Macroeconomics, American Economic Association, vol. 17(1), pages 35-70, January.
    8. Ivan Mendieta-Munoz & Codrina Rada & Marcio Santetti & Rudiger von Arnim, 2020. "The US labour share of income: What shocks matter?," Working Paper Series, Department of Economics, University of Utah 2020_02, University of Utah, Department of Economics.
    9. Charpe, Matthieu & Bridji, Slim & Mcadam, Peter, 2020. "Labor Share And Growth In The Long Run," Macroeconomic Dynamics, Cambridge University Press, vol. 24(7), pages 1720-1757, October.
    10. Rada, Codrina & Tavani, Daniele & von Arnim, Rudiger & Zamparelli, Luca, 2023. "Classical and Keynesian models of inequality and stagnation," Journal of Economic Behavior & Organization, Elsevier, vol. 211(C), pages 442-461.
    11. Jose Barrales-Ruiz & Ivan Mendieta-Muñoz, 2024. "Changing dynamics and tail risks of aggregate demand and income distribution," Working Papers 2414, New School for Social Research, Department of Economics.
    12. Robert A Blecker & Michael Cauvel & Y K Kim, 2022. "Systems estimation of a structural model of distribution and demand in the US economy," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 46(2), pages 391-420.
    13. Eckhard Hein, 2016. "Secular stagnation or stagnation policy? Steindl after Summers," PSL Quarterly Review, Economia civile, vol. 69(276), pages 3-47.
    14. Thomas R Michl & Daniele Tavani, 2022. "Path dependence and stagnation in a classical growth model," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 46(1), pages 195-218.
    15. Jose Barrales‐Ruiz & Ivan Mendieta‐Muñoz & Codrina Rada & Daniele Tavani & Rudiger von Arnim, 2022. "The distributive cycle: Evidence and current debates," Journal of Economic Surveys, Wiley Blackwell, vol. 36(2), pages 468-503, April.
    16. Laura Carvalho & Armon Rezai, 2016. "Personal income inequality and aggregate demand," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 40(2), pages 491-505.
    17. Engelbert Stockhammer, 2017. "Determinants of the Wage Share: A Panel Analysis of Advanced and Developing Economies," British Journal of Industrial Relations, London School of Economics, vol. 55(1), pages 3-33, March.
    18. Jose Barrales‐Ruiz & Rudiger von Arnim & Mikidadu Mohammed, 2023. "Income distribution and economic activity: A frequency domain causal exploration," Metroeconomica, Wiley Blackwell, vol. 74(2), pages 306-327, May.
    19. Fabio Freitas & Franklin Serrano, 2015. "Growth Rate and Level Effects, the Stability of the Adjustment of Capacity to Demand and the Sraffian Supermultiplier," Review of Political Economy, Taylor & Francis Journals, vol. 27(3), pages 258-281, July.
    20. Nelson H. Barbosa‐Filho & Lance Taylor, 2006. "Distributive And Demand Cycles In The Us Economy—A Structuralist Goodwin Model," Metroeconomica, Wiley Blackwell, vol. 57(3), pages 389-411, July.
    21. Giorgio E. Primiceri, 2005. "Time Varying Structural Vector Autoregressions and Monetary Policy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(3), pages 821-852.
    22. Julio Fernando Costa Santos & Ricardo Azevedo Araujo, 2020. "Using non-linear estimation strategies to test an extended version of the Goodwin model on the US economy," Review of Keynesian Economics, Edward Elgar Publishing, vol. 8(2), pages 268-286, April.
    23. David Kiefer & Ivan Mendieta-Muñoz & Codrina Rada & Rudiger von Arnim, 2020. "Secular Stagnation and Income Distribution Dynamics," Review of Radical Political Economics, Union for Radical Political Economics, vol. 52(2), pages 189-207, June.
    24. Li, Mengheng & Mendieta-Muñoz, Ivan, 2024. "Dynamic hysteresis effects," Journal of Economic Dynamics and Control, Elsevier, vol. 163(C).
    25. André M. Marques, 2022. "Reviewing demand regimes in open economies with Penn World Table data," Manchester School, University of Manchester, vol. 90(6), pages 730-751, December.
    26. Engelbert Stockhammer, 2017. "Wage-led versus profit-led demand: what have we learned? A Kaleckian–Minskyan view," Review of Keynesian Economics, Edward Elgar Publishing, vol. 5(1), pages 25-42, January.
    27. Matthew Rognlie, 2015. "Deciphering the Fall and Rise in the Net Capital Share," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 50(1 (Spring), pages 1-69.
    28. David Kiefer & Codrina Rada, 2015. "Profit maximising goes global: the race to the bottom," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 39(5), pages 1333-1350.
    29. Bhaduri, Amit & Marglin, Stephen, 1990. "Unemployment and the Real Wage: The Economic Basis for Contesting Political Ideologies," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 14(4), pages 375-393, December.
    30. Codrina Rada & David Kiefer, 2016. "Distribution†Utilization Interactions: A Race†to†the†Bottom Among Oecd Countries," Metroeconomica, Wiley Blackwell, vol. 67(2), pages 477-498, May.
    31. Matthew Rognlie, 2015. "Deciphering the Fall and Rise in the Net Capital Share: Accumulation or Scarcity?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 46(1 (Spring), pages 1-69.
    32. Mengheng Li & Ivan Mendieta‐Muñoz, 2020. "Are long‐run output growth rates falling?," Metroeconomica, Wiley Blackwell, vol. 71(1), pages 204-234, February.
    33. Peter Flaschel, 2015. "Goodwin’s MKS system: a baseline macro model," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 39(6), pages 1591-1605.
    34. J. Durbin, 2002. "A simple and efficient simulation smoother for state space time series analysis," Biometrika, Biometrika Trust, vol. 89(3), pages 603-616, August.
    35. Dutt, Amitava Krishna, 1984. "Stagnation, Income Distribution and Monopoly Power," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 8(1), pages 25-40, March.
    36. José Barrales & Rudiger von Arnim, 2017. "Longer-run distributive cycles: wavelet decompositions for the US, 1948–2011," Review of Keynesian Economics, Edward Elgar Publishing, vol. 5(2), pages 196-217, April.
    37. Manuel David Cruz & Daniele Tavani, 2023. "Secular stagnation: a Classical–Marxian view," Review of Keynesian Economics, Edward Elgar Publishing, vol. 11(4), pages 554-584, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jose Barrales‐Ruiz & Ivan Mendieta‐Muñoz & Codrina Rada & Daniele Tavani & Rudiger von Arnim, 2022. "The distributive cycle: Evidence and current debates," Journal of Economic Surveys, Wiley Blackwell, vol. 36(2), pages 468-503, April.
    2. Jose Barrales‐Ruiz & Ivan Mendieta‐Muñoz & Codrina Rada & Daniele Tavani & Rudiger von Arnim, 2022. "The distributive cycle: Evidence and current debates," Journal of Economic Surveys, Wiley Blackwell, vol. 36(2), pages 468-503, April.
    3. Jose Barrales-Ruiz, Ivan Mendieta-Muñoz, Codrina Rada, Daniele Tavani, Rudiger von Arnim, 2020. "The distributive cycle: Evidence and current debates," Working Paper Series, Department of Economics, University of Utah 2020_07, University of Utah, Department of Economics.
    4. Santetti, Marcio & Nikiforos, Michalis & von Arnim, Rudiger, 2024. "Growth, cycles, and residential investment," Structural Change and Economic Dynamics, Elsevier, vol. 69(C), pages 313-327.
    5. Stamegna, Marco, 2022. "Induced innovation, the distributive cycle, and the changing pattern of labour productivity cyclicality: a SVAR analysis for the US economy," MPRA Paper 113855, University Library of Munich, Germany.
    6. Eckhard Hein, 2017. "Post-Keynesian macroeconomics since the mid 1990s: main developments," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 14(2), pages 131-172, September.
    7. Robert A Blecker & Michael Cauvel & Y K Kim, 2022. "Systems estimation of a structural model of distribution and demand in the US economy," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 46(2), pages 391-420.
    8. Marques, André M. & Lima, Gilberto Tadeu, 2022. "Testing for Granger causality in quantiles between the wage share in income and productive capacity utilization," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 290-312.
    9. Marco Stamegna, 2024. "Induced innovation, the distributive cycle, and the changing pattern of labour productivity cyclicality: an SVAR analysis for the US economy," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 41(3), pages 881-929, October.
    10. Codrina Rada & Ansel Schiavone & Rudiger von Arnim, 2022. "Goodwin, Baumol & Lewis: How structural change can lead to inequality and stagnation," Metroeconomica, Wiley Blackwell, vol. 73(4), pages 1070-1093, November.
    11. Rada, Codrina & Tavani, Daniele & von Arnim, Rudiger & Zamparelli, Luca, 2023. "Classical and Keynesian models of inequality and stagnation," Journal of Economic Behavior & Organization, Elsevier, vol. 211(C), pages 442-461.
    12. Gilberto Tadeu Lima & André M. Marques, 2024. "Demand and distribution in a dynamic spatial panel model for the United States: Evidence from state‐level data," Metroeconomica, Wiley Blackwell, vol. 75(4), pages 475-519, November.
    13. Robert A. Blecker, 2016. "Wage-led versus profit-led demand regimes: the long and the short of it," Review of Keynesian Economics, Edward Elgar Publishing, vol. 4(4), pages 373-390, October.
    14. Cícero, Vinicius Curti & Lima, Gilberto Tadeu, 2023. "Functional distribution of income as a determinant of importing behavior: An empirical analysis," Structural Change and Economic Dynamics, Elsevier, vol. 65(C), pages 393-405.
    15. Vinicius Curti Cícero & Daniele Tavani, 2024. "Institutional changes, effective demand and inequality: a structuralist model of secular stagnation," Working Papers PKWP2410, Post Keynesian Economics Society (PKES).
    16. Stamegna, Marco, 2022. "A Kaleckian growth model of secular stagnation with induced innovation," MPRA Paper 113794, University Library of Munich, Germany.
    17. Santiago José Gahn & Alejandro González, 2022. "On the empirical content of the convergence debate: Cross‐country evidence on growth and capacity utilisation," Metroeconomica, Wiley Blackwell, vol. 73(3), pages 825-855, July.
    18. David Kiefer & Ivan Mendieta-Muñoz & Codrina Rada & Rudiger von Arnim, 2020. "Secular Stagnation and Income Distribution Dynamics," Review of Radical Political Economics, Union for Radical Political Economics, vol. 52(2), pages 189-207, June.
    19. Codrina Rada, Marcio Santetti, Ansel Schiavone, Rudiger von Arnim, 2021. "Post-Keynesian vignettes on secular stagnation:From labor suppression to natural growth," Working Paper Series, Department of Economics, University of Utah 2021_05, University of Utah, Department of Economics.
    20. Marcio Santetti, Michalis Nikiforos, Rudiger von Arnim, 2022. "Growth, cycles, and residential investment," Working Paper Series, Department of Economics, University of Utah 2022_04, University of Utah, Department of Economics.

    More about this item

    Keywords

    Growth and distribution; stagnation; demand regime;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • 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
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:new:wpaper:2505. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mark Setterfield (email available below). General contact details of provider: https://edirc.repec.org/data/denewus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.