A Very Short Explanation of Profit- versus Wage-led Growth

By David M. Fields

A central concern in Left (Post)-Keynesian heterodox macroeconomics is the interaction between economic activity and the distribution of the income that is generated. The problematic deals with the quandary on whether rising wage-shares bolster demand and increases the rate of capacity utilization, which, in turn, induces capitalists to invest, or that rises in the profit share serve as the primary stimulus to economic growth. Put differently, the subject deals with the distinction between profit- and wage-led growth (Bhaduri and Marglin, 1990; Vernengo and Rochon, 2001).

A large body of work has investigated the issue empirically (cf. Stockhammer and Onaran, 2013; Barbosa-Filho and Taylor, 2006; Hein and Vogel, 2008; Stockhammer et al, 2009), yet the primary theoretical difference lies in the treatment of capitalist investment. Wage-led growth models, inspired by the contributions of Nicholas Kaldor, estimate the degree to which capitalist investment is derived demand attuned to the growth of autonomous demand. In contrast, profit-led models, influenced by the work of Joan Robinson, gauge to determine the extent to which capitalist investment is an independent function subordinate to the rate of profit. In this sense, changes in income distribution have ambiguous effects on capital accumulation, which ultimately rests on the exact specification of the investment function in relation to an approximate remunerated risk, i.e. a normal rate of profit, of employing capital productively.


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Stockhammer, Engelbert and Ozlem Onaran. 2013. “Wage-Led Growth: Theory, Evidence, Policy.” Review of Keynesian Economics 1(1):61–78.

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