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Workers Trying to Climb the Income Ladder: Debt-Financed Knowledge Capital Accumulation and Distributive Conflict

Author

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  • Gustavo Pereira Serra
  • Marina da Silva Sanches
  • Gilberto Tadeu Lima

Abstract

This paper explores the two-way relationship between workers` investment in knowledge capital, funded through income-contingent loans, and functional income distribution within a demand-led macrodynamic framework. Real wage growth is positively influenced by the employment rate (which equals the utilization rate of knowledge capital) and the growth of labor productivity (which equals the growth of knowledge capital), and negatively by the ratio of workers` debt to knowledge capital. In the short-run equilibrium, the level of economic activity is positively influenced by the labor share of income. In the unique long-run equilibrium - which is stable as long as the response of real wage growth to the workers` debt ratio is not too strong - parameter changes that boost aggregate demand or strengthen workers` bargaining power in wage negotiations (with the exception of the parameter mediating the positive effect of the expected real wage income on investment in knowledge capital) result in a higher labor share and a lower workers` debt ratio. While greater investment in knowledge capital raises the level of economic activity in the short-run equilibrium, it may not have the same effect - and may fail to increase the labor share - in the long-run equilibrium.

Suggested Citation

  • Gustavo Pereira Serra & Marina da Silva Sanches & Gilberto Tadeu Lima, 2025. "Workers Trying to Climb the Income Ladder: Debt-Financed Knowledge Capital Accumulation and Distributive Conflict," Working Papers, Department of Economics 2025_08, University of São Paulo (FEA-USP), revised 12 Aug 2025.
    • Handle: RePEc:spa:wpaper:2025wpecon8
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    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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