Macroeconomics of Growth Cycles and Financial Instability
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Macroeconomics of Growth Cycles and Financial Instability

Piero Ferri

In light of the recent economic crisis and in keeping with Hyman Minsky’s analysis of financial instability, this book considers the important interaction between cycles and growth, via the interplay between demand, supply and real-world financial issues.
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Chapter 12: The Role of Labor Share

Piero Ferri


LABOR SHARE AND DEBTS While in the previous chapter, the labor share has been assumed to be constant, this hypothesis will be dropped in what follows. The strategic role of income share in shaping the dynamics of both cycles and growth has a long tradition dating back to the work of Ricardo and, more recently, of Goodwin (1982). The medium-run strategy followed in this book suggests two lines of research. On one hand, the role of income share in shaping the dynamics of the economy must be studied in relation to cash flow and debt. On the other, one must consider how the stylized facts concerning these aspects have evolved over time. To this purpose, let us consider the following stylized facts illustrated in Table 12.1, which compares labor share vis-à-vis different debt patterns in two significant sub-periods. The two periods considered relate to the US economy during, respectively, the Great Depression and the recent decade. The Great Depression is considered after the crash, while the recent events are analyzed before the explosion of the bubble. Two contrasting results emerge from the table. In fact, while the labor share tends to fall in a booming economy and increase in a depression, the pattern of debt is different. Also, while firms’ debt was positively correlated with labor share during the Great Depression, it was household debt that was negatively correlated with income share in the recent booming years. Tables 12.2 and 12.3, while confirming the pattern that has been represented...

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