Goodwin, Baumol & Lewis: How structural change can lead to inequality and stagnation

Abstract

This paper presents a labor-constrained aggregate model of growth that explains stagnation and inequality as the result of structural change, which is defined as an exogenous increase in the employment share of low-productivity services. Productivity growth is increasing in the labor share, reminiscent of induced technical change.Productivity and real wage growth further are assumed to respond negatively to structural change. We label the positive (negative) difference between these effects dominant Lewis (Baumol) dynamics. In steady state, and across two model variants, structural change leads to stagnation.Only the model version with Keynesian aggregate demand, dominant Lewis dynamics and a weak profit squeeze also exhibits a falling labor share, and hence conforms to key stylized facts.

Income distribution and economic activity: A frequency domain causal exploration

“…For example, results based on a four-dimensional SVAR in output, unemployment rate, real wage and labor producimportant role in Skott (1989), and also Flaschel et al (2007). It is potentially crucial to stabilize a 3D model of this type; see Rada et al (2021), and an appendix to Rada et al (2022) for a proof. Considering these issues is beyond the scope of this paper.…”

Post-Keynesian growth theory and the supply side: a feminist approach

“…As was demonstrated in subsection 2.2, technical change can connect distribution to the determinants of the potential rate of growth. Although this does not automatically solve the first Harrod problem, if y p is affected by distribution and g ¼ y p is observed in the steady state, then distribution can be said to affect the actual (equilibrium) rate of growthbut through supply-side channels, rather than the demand-side channels traditionally emphasized in PK macrodynamics (Petach/Tavani 2020;Luzuriaga/Tavani 2021;Rada et al 2021Rada et al , 2022Michl/Tavani 2021). Further to all this, as is demonstrated by Rada et al (2021), in a model in which distribution affects both the actual and (via technical change) potential rates of growth, redistribution of income may provide a mechanism capable of reconciling the equilibrium and potential rates of growth and thus solving the first Harrod problem.…”

Classical and Keynesian models of inequality and stagnation

“…;Foley (2003);Julius (2005);Rada (2012);Zamparelli (2015) incorporate this mechanism of induced technical change in classical Goodwinian frameworks. Keynesian and structuralist research draws on the underlying idea-that high real unit labor costs spur labor-saving technical change-but does not utilize optimizing, supply-driven model structures(Barbosa-Filho and Taylor, 2006;Storm and Naastepad, 2012) Rada et al (2021Rada et al ( , 2022. elaborate the relevant theoretical linkages.…”

“…The u, ψ-cycle emerges only in the three-dimensional system, and is there determined by ∂ ė/∂u = eh u > 0: the employment rate increases in the income-capital ratio, and then drives the profit squeeze via ω e . SeeRada et al (2021Rada et al ( , 2022 for further discussion.…”