Functional income distribution and aggregate demand in the Euro area

Stockhammer, E., Onaran, Ö. and Ederer, S. 2009. Functional income distribution and aggregate demand in the Euro area. Cambridge Journal of Economics. 33 (1), pp. 139-159.

TitleFunctional income distribution and aggregate demand in the Euro area
AuthorsStockhammer, E., Onaran, Ö. and Ederer, S.
Abstract

An increase in the wage share has contradictory effects on the subaggregates of aggregate demand. Private consumption expenditures ought to increase because wage incomes typically are associated with higher consumption propensities than capital incomes. Investment expenditures ought to be negatively affected because investment will positively depend on profits. Net exports will be negatively affected because an increase in the wage share corresponds to an increase in unit labour costs and thus a loss in competitiveness. Therefore, theoretically, aggregate demand can be either wage-led or profit-led depending on how these effects add up. The results will crucially depend on how open the economy is internationally. The paper estimates a post-Kaleckian macro model incorporating these effects for the Euro area and finds that the Euro area is presently in a wage-led demand regime. Implications for wage policies are discussed.

JournalCambridge Journal of Economics
Journal citation33 (1), pp. 139-159
ISSN0309-166X
Year2009
PublisherOxford University Press
Digital Object Identifier (DOI)doi:10.1093/cje/ben026
Publication dates
Published2009

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