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Wage- versus profit-led growth in the context of globalization and public spending: the political aspects of wage-led recovery

Özlem Onaran

Keywords: wage share; wage-led growth; globalization; public investment

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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