Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/106007
Authors: 
Palley, Thomas I.
Year of Publication: 
2014
Series/Report no.: 
IMK Working Paper 141
Abstract: 
The distinction between wage-led and profit-led growth is a major feature of Post-Keynesian economics and it has triggered an extensive econometric literature aimed at identifying whether economies are wage or profit-led. That literature treats the economy's character as exogenously given. This paper questions that assumption and shows an economy's character is endogenous and subject to policy influence. This generates a Post-Keynesian analogue of the Lucas critique whereby the econometrically identified character of the economy depends on policy rather than being a natural characteristic. Over the past twenty years, policy has made economies appear more profit-led by lowering workers' share of the wage bill and tax rates on shareholder income. Increasing workers' wage bill share increases growth and capacity utilization regardless of whether the economy is wage-led, profit-led or conflictive. That speaks to making it the primary focus of policy efforts.
Subjects: 
wage-led
profit-led
Lucas critique
income distribution
financialization
JEL: 
E12
O41
O33
Document Type: 
Working Paper

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