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Goodwin, Baumol & Lewis: How structural change can lead to inequality and stagnation

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  • Codrina Rada
  • Ansel Schiavone
  • Rudiger von Arnim

Abstract

This paper presents a labor‐constrained aggregate model of growth that explains stagnation and inequality as the result of structural change, which is defined as an exogenous increase in the employment share of low‐productivity services. Productivity growth is increasing in the labor share, reminiscent of induced technical change. Productivity and real wage growth further are assumed to respond negatively to structural change. We label the positive (negative) difference between these effects dominant Lewis (Baumol) dynamics. In steady state, and across two model variants, structural change leads to stagnation. Only the model version with Keynesian aggregate demand, dominant Lewis dynamics and a weak profit squeeze also exhibits a falling labor share, and hence conforms to key stylized facts.

Suggested Citation

  • Codrina Rada & Ansel Schiavone & Rudiger von Arnim, 2022. "Goodwin, Baumol & Lewis: How structural change can lead to inequality and stagnation," Metroeconomica, Wiley Blackwell, vol. 73(4), pages 1070-1093, November.
    • Handle: RePEc:bla:metroe:v:73:y:2022:i:4:p:1070-1093
    DOI: 10.1111/meca.12390
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    5. Codrina Rada & Ansel Shiavone & Rudiger von Arnim, 2024. "An exploration of neo-Goodwinian theory of cyclical growth," Working Papers 2403, New School for Social Research, Department of Economics.

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