Inequality of Income and Wealth in the Long Run: A Kaldorian Perspective

Abstract

The paper examines the determinants of income and wealth inequality in a Kaldorian model where the profit share adjusts to clear the goods market and the long-run output-capital ratio is constant. The approach is radically different from both the mainstream approach that stresses properties of production function and the Kaleckian approach that emphasizes the long-run adjustment of utilization. The Kaldorian model is used to identify several developments that may have caused increasing inequality in income and wealth since the early 1980s, including the shift of the power relation in corporate firms in favor of top managerial pay, the decline in the retention rate, increasing share buybacks, rising indebtedness of lower-income households, and the stock market boom in the 1990s. In contrast to Piketty's explanation, the decline in the natural rate of growth reduces inequality of income and wealth in this Kaldorian framework.keyword income and wealth distribution, managerial pay, financialization, stock-flow consistency JEL classification E12, E21, E25, E44

Weaknesses of ‘wage-led growth’*

“…Comparing (25) and (26) it is apparent that for some parameter values the reduced-form pro…t-growth correlations will be positive if the shifts in distribution are brought about by strengthening workers (changes in w ) but negative if they are brought about by increasing competition (changes in p ):…”

Top income shares and aggregate wealth-income ratio in a two-class corporate economy

“…This case roughly captures what the US economy experienced from the early 1980s until 2007. See Ryoo (2016b) for the analytic details.…”

“…The analysis is based on a Cambridge two-class model developed in Ryoo (2016b), which extends Kaldor (1955Kaldor ( /56, 1966 and Pasinetti (1962) along the lines of Skott (1981Skott ( , 1989 and Skott and Ryoo (2008). Some empirical components of this paper are motivated by recent findings of Piketty and Saez 1 (2003), Piketty (2014) and Saez and Zucman (2014) regarding income and wealth distribution in the U.S. 1 The paper starts to point out the di culties of Piketty's neo-classical version of explanation of US income inequality which is based on the combination of the rising aggregate wealthincome ratio and high elasticity of factor substitution (section 2).…”

Wealth Distribution, Elasticity of Substitution and Piketty: An ‘Anti‐Dual’ Pasinetti Economy

“… A recent paper by Ryoo () shows that the Kaldorian framework produces the opposite result: a decline in the natural growth rate reduces wealth inequality.…”

“…In fact, even within the neoclassical framework alternative explanations are possible once technical change and market power are introduced. Piketty and Zucman (2014, p. 1303) themselves have offered two suggestions: a model with imperfect competition and an 6 A recent paper by Ryoo (2016) shows that the Kaldorian framework produces the opposite result: a decline in the natural growth rate reduces wealth inequality. 7 Piketty andZucman (2015, p. 1347-8) do acknowledge alternative theoretical frameworks, such as endogenous growth models where the growth rate is a positive function of the saving rate.…”