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Innovation, Unemployment and Policy in the Theories of Growth and Distribution

Edited by Neri Salvadori and Renato Balducci

Innovation, Unemployment and Policy in the Theories of Growth and Distribution increases our understanding about the more relevant economic determinants and policy aspects of the interdependence between economic growth and income distribution.
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Chapter 6: Bargaining, distribution and growth

Renato Balducci and Stefano Staffolani


Renato Balducci and Stefano Staffolani 6.1. INTRODUCTION During the 1950s and 60s, the complex relationship between income distribution and economic growth was extensively studied. This issue was debated, amongst others, by Kaldor (1956), Pasinetti (1962, 1969) and Samuelson and Modigliani (1966). Attention focused mainly on the different propensities to save of the social classes comprising workers and capitalists, and on the change in the average rate of saving brought about by variations in the proportions of total income accruing to one or other class. Our aim is to re-examine bargaining, functional distribution of income and endogenous growth, following a two-stage model which combines the long-run optimality of the economic system, as seen by a ‘social planner’, with the short-run potentially myopic behaviour of collective agents, that is, trade unions and firms. In particular, we consider: (1) the role played by profits in explaining the investment rate through capital market imperfections. Real profits (internal funds) enable firms to combat liquidity constraints when access to capital markets is not perfect, as described by Stiglitz and Weiss (1981), Greenwald and Stiglitz (1987), Chirinko (1987), and Fazzari et al. (1988). Because of transaction costs in the financial market, the capital share is partially or, if the Modigliani–Miller theorem holds, totally reinvested in physical capital, whereas the labour share is optimally allocated between consumption and investment in human capital.1 We obtain that long-run optimality is dependent on factor shares; (2) the role of trade unions and firms (whose objective function may not take into...

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