Onaran, Ozlem and Galanis, Giorgos. 2012. Is aggregate demand wage-led or profit-led? National and global effects. Working Paper. International Labour Office, Geneva. [Report]

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Abstract or Description

This paper estimates the effects of a change in the wage share on growth in the G20 countries using a post-Keynesian/post-Kaleckian model, analyses the interactions among different economies, and calculates the global multiplier effects of a simultaneous decline in the wage share. At the national level, a decrease in the wage share leads to lower growth in the euro area, Germany, France, Italy, UK, US, Japan, Turkey, and Korea, i.e. these economies are wage-led, whereas it stimulates growth in Canada, Australia, Argentina, Mexico, China, India, and South Africa; thus the latter group of countries are profit-led. However, a simultaneous decline in the wage share in all these countries leads to a decline in global growth. Furthermore, Canada, Argentina, Mexico, and India also contract when they decrease their wage-share along with their trading partners. Thus the global economy in aggregate is wage-led. The policy conclusions of the paper shed light on the limits of strategies of international competitiveness based on wage competition in a highly integrated global economy, and point at the possibilities to correct global imbalances via coordinated macroeconomic and wage policy, where domestic demand plays an important role. There is room for a wage-led recovery in the global economy based on a simultaneous increase in the wage shares, where global GDP as well as all individual countries can grow.

Item Type:	Report (Working Paper)
Additional Information:	JEL Classification: E21, E22, E25, F43 This paper has received research funding from the International Labour Office.
Keywords:	wage share, growth, global multiplier, consumption, investment, exports, imports, G20, developed and developing countries
Related URLs:	Organisation Organisation
Departments, Centres and Research Units:	Institute of Management Studies
Date:	30 October 2012
Item ID:	30859
Date Deposited:	09 Dec 2021 10:09
Last Modified:	09 Dec 2021 10:43
URI:	https://research.gold.ac.uk/id/eprint/30859

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