A Kaleckian growth model of secular stagnation with induced innovation

This paper works out a demand‐led growth model that draws on the Kaleckian‐Steindlian tradition to examine the relationships between income distribution, capacity utilization, and capital accumulation; on Goodwin‐type growth cycle models to investigate the dynamic interaction between labour market and distributive conflict; and on the induced innovation literature to link labour productivity growth to income distribution. We find that: (i) an increase in the labour share driven by stronger workers' bargaining power leads to faster capital accumulation and labour productivity growth in the long run, irrespective of the short‐run growth regime of the economy; (ii) a positive institutional shock to the labour share can either increase or decrease the long‐run employment rate, depending on the short‐run growth regime; and (iii) an increase in the labour share driven by negative technology shocks leads to faster capital accumulation and labour productivity growth in the long run only if the economy exhibits a short‐run wage‐led regime. This model then unifies classical/neo‐Goodwinian and Kaleckian views on the long‐run relationships between the labour share, employment, and growth within a more general Kaleckian framework of a labour‐constrained economy with induced technical change.