Profits, Wages, and Productivity in the Business Cycle: A Kaldorian Analysis


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More Contact us Publish with us Subscribe. Show Summary Details Debt deflation worries: a restatement Public debt crisis, austerity and deflation: the case of Greece The post debt disinflation: an exercise in historical accounting The economics of deflation in the euro area: a critique of fiscal austerity Demand-driven Goodwin cycles with Kaldorian and Kaleckian features Growth cycles with or without price flexibility Growth cycles: a response to Peter Skott Is sticky price adjustment important for output fluctuations?

You do not have access to this content. Subscriber Login. Forgot your password? Debt deflation worries: a restatement Public debt crisis, austerity and deflation: the case of Greece The post debt disinflation: an exercise in historical accounting The economics of deflation in the euro area: a critique of fiscal austerity Demand-driven Goodwin cycles with Kaldorian and Kaleckian features Growth cycles with or without price flexibility Growth cycles: a response to Peter Skott Is sticky price adjustment important for output fluctuations?

Edward Elgar Publishing. Powered by PubFactory. It is essentially holistic. Appraisal of relative shares in income is difficult see Boxed Text 1 below. Therefore is not surprising that results differ significantly according to assumptions made. Data on share of wages in income differ more than fourteen points according to whether it refers to Basualdo's or Neffa's 4 contributions for example.

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From a different methodology, J. Neffa observed similar developments of share of wages in income.

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He estimates it in Share of wages recovery in value added since , is explained essentially by improvement of wages and rise of employment coupled to a relative decrease of informal employment. It is significant and breaks with the trend observed in the s. Second approach on income distribution, so-called "personal" one, relates percentages of people and incomes acquired by them as percentages of total income. It is based on the Lorentz curve. This approach has been imposed as a result of the rising of methodological individualism paradigm.

It is very instructive because it allows to compare the respective revenue share assigned to each decile, see percentile, of the population and to see how Lorentz curve deforms under the influence of different ways of insertion in the global economy liberal, interventionist , productive specialization patterns rent products exports versus industrial products exports, and beyond that, on which industrial products specialization concentrates , economic growth models, direct and indirect State intervention on income distribution. Overall distribution of income, including wages, became less uneven in the s in Latin-American economies to the difference of what can be observed in industrialized countries 7.

The two approaches are not identical. One of them analyzes the distribution of income between wages and profits, the other presents distribution of income pattern between individual persons other than moral or legal regardless of revenues origin salaries before direct taxes net of transfers, dividends, interest and rents. Nevertheless, these two approaches are complementary, rich and problematic. Rich because they allow establishing time periods and then characterize different growth patterns 8.

Rich too because they lead to establish relationships between, on one hand, volume and forms of capital accumulation what kinds of technical progress exist and, on the other hand, variations in income distribution and vice versa. These approaches are problematic for two reasons: firstly, as we have noted models we will present here that back these theories have been constructed to interpret long term stability on relative shares in income distribution in industrialized countries from the s to the s.

Problematic finally because aggregation of different variables to construct. Ricardo was one of the first economists to establish a relationship between income distribution favorable to landowners and the dynamics of economic growth. Workers are paid a salary that allows just their physical reproduction. Industrial investment leads to an increase in employment and therefore to a growing demand for subsistence goods wheat that finally requires the use of less fertile new lands.

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Wheat price is determined by the marginal cost of the last unit of land in production, that is to say the less fertile land. Wheat price raises so as investment grows and, as wheat price corresponds to marginal cost, landowners rent arises. Therefore, for entrepreneurs cost of labor in wheat increases but workers' purchasing power is not improved. Share of profits in total revenue falls under the combined effect of rising rents and growing wages; the final result is a tendency to stagnation.

Relationship between economic growth, income distribution and labor value theory explain the strength and consistency of this analysis. With Marx, this analysis is both more relevant and more in-depth for two essential reasons: his theory of value is not the same as that of Ricardo labor and labor force value are different things, and from this distinction surplus value theory has born 9.

Labor can be productive or not. In this latter case, it is paid by surplus value. Unproductive workers are divided into two categories: those which are not in the capital cycle, as house staff, and those who enter in that cycle. They are indirectly productive workers because they make possible to reduce capital time cycles by making more efficient the phases of transforming merchandises into money and money into capital.

While paid by surplus value, employment of these workers permits to obtain more surplus value. Benefit has a triple destination: purchase of production means and payment of wages to productive workers; salaries payment of indirectly productive workers; unproductive consumption expenditure of capitalists in this case money is spent as revenue and does not turn into capital. Indirectly productive work has taken a considerable extent with the development of capitalism. Indirectly productive jobs are in services, including certain financial services.

Categories of national accounts do not correspond to concepts defined by Marx It is therefore difficult to measure evolution of relative shares of wages and profits in income from Marx's approach, taking into account the growing size of indirectly productive employment with the rise of services industry related to capital accumulation, as marketing and many financial services Trade internationalization: Overriding Kaldor in an open economy.

According to Kaldor 12 , share of profits in revenue depends on the rate of investment and on the difference between capitalists' saving propensity and that of workers.

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More investment rate increases, more the share of profits in income grows. More the gap between propensities to save of entrepreneurs and workers is important, less the share of profits in income will be bigger. This approach is Keynesian because investment does not depend on saving but on animal spirits and prospects for profit. Sequence is simple: increase in investment rate, under the assumption of full employment of labor and capital, drives mechanically to a rise in prices and to a fall in real wages.

Then, this "forced saving" process leads to an increase in share of profits. Kaldor's model assumptions are those of a closed economy with full employment, both for work and production capacity. We can accept these simplified assumptions for the industrialized economies during the period Nevertheless, they are not for the semi-industrialized economies.

Kaldor's contribution is therefore very limited to explain income shares evolution of profits and wages in semi-industrialized economies. Full employment has a different meaning with multiplication of employment modalities formal, informal, partial and full time and mechanisms leading to increasing wages are different.

Relationship between investment rate, propensities to save, and share of profits in national income, as defined by Kaldor, does not occur in Latin-American semi-industrialized economies. In Latin America investment rate is relatively low. Share of profits in income should be low, all things being equal, but it is very important.


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Overall propensity to save is low and also that of entrepreneurs Difference between propensities to save of entrepreneurs and workers is therefore not as important as in industrialized countries. Consequently, its effect on share of profits in income, for a given investment rate, is not considerable.

However, external criticism of some of these assumptions enriches analysis presented here. So, we chose to reject closed economy hypothesis and to analyze effects of trade and financial globalization on income distribution in Latin-American emerging economies, characterized by higher wages than those of developing Asian economies.

Globalization is the result of a long process that has affected all economies in the world.

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Wage share

Growing internationalization of economic activities has resulted in a widespread expansion of exchanges, more or less intense and regular according to different countries. This tendency has been reinforced since the s. Emerging Latin-American economies suffer strong competition from Asian countries' slight sophisticated products and from industrial countries' more sophisticated products. Gap in wages between Latin-American countries and Asian emerging economies being greater than productivity gap have conducted to a strong competitiveness from emerging Asian economies.

Wage differential between these Latin-American economies and industrialized countries is not sufficiently high to offset their productivity gap, consequently competitiveness plays to their detriment. Competitiveness constraint increases when the exchange rate appreciates in relation to dollar. This is the case in Latin America with a few exceptions, but this is not the case in Asian countries in recent years When the exchange rate appreciates, wage rate in dollars increases even though it would be constant in local currency.

The result is an inability on the part of these countries to obtain a positive trade balance on industrial products; these are the cases of Argentina, Brazil since , and Mexico. Additionally, in some cases a process of "early" deindustrialization is observed, as is the case of Brazil see Boxed Text 2. In these conditions, this constraint of specific competitiveness is a powerful brake on wages increasing. If they increase in real terms, this is done in detriment of trade balance.


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  • This is which explains that real wages growth has been lower than that of labor productivity. This gap in the evolution of productivity and wages represents a s characteristic trait. Finally, businesses financialization develops with financial globalization. Its effects are being felt on the evolution of industrial salaries and on that of profits destined for investment. Financialization implies requirements of increased dividends, high profitability constraints imposed by financial sector and, when interest rates are high, an important business debt service. During the boom nobody listened to me.

    Section C: What are the myths of capitalist economics?

    Now people again turn to me and ask how the consequences of a policy of which I had constantly warned can be avoided. In Prices and Production Hayek did not take up the question of how long a cyclical expansion might last. He assumed that reserve losses or price inflation would eventually compel banks to raise the loan rate. In his discussion of expectations, he was somewhat vague on timing matters, as is characteristic of most macroeconomic theories. In Hayek appeared less sanguine about whether the Ricardo effect would check an expansion in the absence of a rise in market interest rates.

    Determining the importance of the Ricardo effect would have one tangible benefit that I have not seen discussed. The Ricardo effect offers an explanation of the Phillips curve phenomenon.

    Profits, Wages, and Productivity in the Business Cycle: A Kaldorian Analysis Profits, Wages, and Productivity in the Business Cycle: A Kaldorian Analysis
    Profits, Wages, and Productivity in the Business Cycle: A Kaldorian Analysis Profits, Wages, and Productivity in the Business Cycle: A Kaldorian Analysis
    Profits, Wages, and Productivity in the Business Cycle: A Kaldorian Analysis Profits, Wages, and Productivity in the Business Cycle: A Kaldorian Analysis
    Profits, Wages, and Productivity in the Business Cycle: A Kaldorian Analysis Profits, Wages, and Productivity in the Business Cycle: A Kaldorian Analysis
    Profits, Wages, and Productivity in the Business Cycle: A Kaldorian Analysis Profits, Wages, and Productivity in the Business Cycle: A Kaldorian Analysis

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