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Özlem Onaran

This paper presents the mechanism of the boom-bust cycles in the context of domestic and international financial liberalisation in the developing countries, and the effects of crises and exchange rate volatility on functional income distribution. It is based on the case of Turkey, which has experienced two severe crises in 1994 and 2001 after the liberalisation of capital flows, and which has also been hit the hardest during the May-June 2006 turbulences. The paper analyses the recent turbulences in the global economy and their consequences in the emerging markets as a case study to illustrate the endogenous formation of expectations. The recovery in Turkey after the turmoil is not based on a solution to the structural causes of the problem, since it has completely depended on the reversal of the capital outflows thanks to high interest rate, but the continuity of this game is far from clear.

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Özlem Onaran

This paper presents the empirical evidence about the impact of the simultaneous race to the bottom in labour's share on growth after taking global interactions into account based on the post-Kaleckian theoretical framework developed by Bhaduri and Marglin (1990). The world economy and large economic areas are likely to be wage-led; and parameter shifts in different periods are unlikely to make a difference in this finding. The effects that can come from a wage-led recovery on growth and hence employment are positive, however they are also modest in magnitude. We then present an alternative scenario based on a policy mix of wage increases and public investment. A coordinated mix of polices in the G20 targeted to increase the share of wages in GDP by 1–5 per cent in the next 5 years and to raise public investment in social and physical infrastructure by 1 per cent of GDP in each country can create up to 5.84 per cent more growth in G20 countries. The final section addresses the political aspects and barriers to a wage-led recovery.

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Özlem Onaran

This paper summarizes two main findings in the post-Keynesian literature regarding the linkages between financialization, income distribution, accumulation and productivity. First, at the core of secular stagnation lies the missing link between profits and investment. Second, rising inequality and financialization have been the main reasons for this missing link and hence the major brakes against capital accumulation and growth. The paper concludes with alternative progressive policies based on a coordinated policy mix of equality-led development and public investment.

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Engelbert Stockhammer and Ozlem Onaran

The paper provides an overview of the concept of wage-led growth, both as an analytical concept and as an economic policy strategy. At the core of our analysis is the distinction between wage-led and profit-led demand regimes. The Kaleckian tradition in macroeconomics asserts that a higher wage share will have expansionary effects. Bhaduri and Marglin (1990) generalize the model by allowing for classical mechanisms. The paper presents a two-country short run model to clarify the key concepts surrounding a wage-led vs a profit-led demand regime. It distinguishes carefully between partial and total effects and it analyses demand regimes with respect to national as well as international changes in the wage share. We also review the empirical literature. Our reading is that the available evidence indicates that demand in most economies is domestically wage-led. Changes in functional income distribution also have supply-side effects. Available evidence suggests that higher wage growth induces higher productivity growth. Neoliberalism resulted in an increase in inequality and a decline in the wage share, but growth has nowhere been based on the profit-led growth process. Rather neoliberalism has given rise to either debt-led or export-led growth regimes. The paper concludes by outlining a wage-led growth strategy and by discussing its limitations.

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Torsten Niechoj, Özlem Onaran and Sabine Reiner

First paragraph

In 2012, public debt is still at the centre of attention and economic policies – globally, but especially in Europe. For most of the mainstream commentators the main source of public debt can be traced back to loose public spending behaviour and a lack of fiscal discipline. However, story and facts do not coincide perfectly, to say the least (see also the contributions by Ederer in the forum section of this issue and Niechoj and van Treeck 2011 in the last issue of this journal). To give only one example taken from the European case: In Spain the level of public debt is still below the German level although Germany is the main proponent and an example of presumably sound fiscal policy and a successful recovery after the financial market crisis from the point of view of both the public and mainstream academia. Additionally, the debt-to-GDP ratio of Spain had been falling until 2007, down to only 36 per cent, which is quite low in international comparison and far below the debt criterion of the European Stability and Growth Pact.

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Editorial

The jobs crisis: causes, cures, constraints

Özlem Onaran, Miriam Rehm, Till van Treeck and Andrew Watt