Edited by Hassan Bougrine and Louis-Philippe Rochon
Chapter 10: Long-term shifts in demand and distribution in neo-Kaleckian and neo-Goodwinian models
Post-Keynesian economists have debated whether aggregate demand is wage-led or profit-led in the short run, but the data for many countries reveal that in the long run declines in indicators of demand (such as utilization or growth rates) have been associated with parallel decreases in the wage share. This chapter addresses how these long-term trends can be explained by the alternative theoretical views. For those who believe in wage-led demand, the explanation is straightforward: forces such as globalization and financialization have depressed the wage share, which in turn depresses utilization in the short run and growth in the long run. For those who believe in profit-led demand, another explanation is argued to be possible. That is, factors that depress aggregate demand – such as financialization, wage inequality, and contractionary monetary and fiscal policies (inflation-targeting and fiscal austerity) – indirectly depress wages relative to productivity, thereby lowering the wage share, provided that the distributional relationship exhibits ‘profit-squeeze’ behaviour.
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