In a seminal paper on Marxian business cycle theory Goodwin (1967) presented a model, which assumed that a higher wage share leads to lower investment and thus a general economic slowdown. In contrast Kalecki (1971) was arguing that a higher wage share would have an expansionary effect because the consumption propensity out of wage income is higher than that out of profit income. Based on a general model that allows for wage-led as well as profit-led demand regimes, this paper estimates the effects of a change in the wage share on aggregate private domestic demand with quarterly data for 12 OECD countries.
Engelbert Stockhammer, Department of Economics, Vienna University of Economics and Business. Robert Stehrer, Vienna Institute for International Economic Studies. This paper was published by the Political Economy Research Institute on 17 June 2009.