Functional income distribution and aggregate demand in the Euro area

Abstract

-An increase in the wage share has contradictory effects on the subaggregates of aggregate demand. Private consumption expenditures ought to increase because wage incomes typically are associated with higher consumption propensities than capital incomes. Investment expenditures ought to be negatively affected because investment will positively depend on profits. Net exports will be negatively affected because an increase in the wage share corresponds to an increase in unit labor costs and thus a loss in competitiveness. Theoretically aggregate demand can therefore be either wage led or profit led depending on how these effects add up. The results will crucially depend on how open the economy is internationally. The paper estimates a Post-Kaleckian macro model incorporating these effects for the Euro area and finds that the Euro area is presently in a wage-led demand regime. Implications for wage policies are discussed.

Relationship Between Inflation and Real Economic Growth in Rwanda

“…Third, a relatively stable international order was found to be significant and positively related to growth. Stockhammer et al (2008) estimated the relationship between functional income distribution and aggregate demand (AD) in the Euro area. They modeled AD as: AD is the sum of consumption (C), investment (I), net exports (NX) and government expenditure (G).…”

Functional Distribution of Income and Economic Activity in Croatia: Post-Keynesian Approach

“…Perhaps the most comprehensive study of this type is Stockhammer, Onaran and Ederer, (2009). They test a Kaleckian model for the Euro area as whole and specific countries from the Euro area.…”

Pseudo-Goodwin cycles in a Minsky model

“…On the other are those who argue that aggregate demand is wage-led (e.g. Stockhammer et al, 2009). These two strands of the literature intersect in studies which look for Goodwin-like patterns in empirical data and argue that such patterns provide support for the profit-led demand hypothesis: "A general finding is that 'profit squeeze' cycles exist for the US economy."…”