Working papers, Department of Economics, WU (Wirtschaftsuniversität Wien)
Functional income distribution and aggregate demand in the Euro-area
(), Özlem Onaran
() and Stefan Ederer
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 labor costs and thus a
loss in competitiveness. Theoretically aggregate demand can therefore 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.
JEL-Codes: E12; E20; E22; E25; E61; (follow links to similar papers)
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