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Growth and inequality revisited: the role of primary distribution of income. A new approach for understanding today’s economic and social crises

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  • Ricardo Molero-Simarro

Abstract

This paper presents an innovative interpretative scheme of the relationship between economic growth and income inequality, taking the primary distribution of income between profits and wages as the main explanatory variable. For that purpose, two lines of research are taken as a reference point: first, the Bhaduri-Marglin Model, which explains growth in terms of the effect that factor shares have on aggregate demand; and second, recent empirical analyses that also use the functional distribution to explain the evolution of the top income shares and the Gini index. After reviewing the literature on the growth-inequality relationship, the paper identifies several relationships between primary and interpersonal distributions of income in each of the Bhaduri-Marglin Model’s growth regimes. It finds multiple causal relationships between growth and inequality as well as inequality and growth, clarifying their implications for economic and social stability. The paper offers final reflections on the way the scheme can further the understanding of current economic and social crises.

Suggested Citation

  • Ricardo Molero-Simarro, 2017. "Growth and inequality revisited: the role of primary distribution of income. A new approach for understanding today’s economic and social crises," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 41(2), pages 367-390.
    • Handle: RePEc:oup:cambje:v:41:y:2017:i:2:p:367-390.
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    File URL: http://hdl.handle.net/10.1093/cje/bew017
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    Citations

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    Cited by:

    1. Subhasankar Chattopadhyay, 2020. "Growth, income distribution and unemployment in a two‐sector economy," Metroeconomica, Wiley Blackwell, vol. 71(4), pages 715-733, November.
    2. Wang, Linhui & Cao, Zhanglu & Dong, Zhiqing, 2023. "Are artificial intelligence dividends evenly distributed between profits and wages? Evidence from the private enterprise survey data in China," Structural Change and Economic Dynamics, Elsevier, vol. 66(C), pages 342-356.
    3. Gries, Thomas, 2018. "A New Theory of Demand-Restricted Growth," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181515, Verein für Socialpolitik / German Economic Association.
    4. Brenda Denise Dorpalen, 2022. "How do inequalities in cultural engagement impact on economic growth?," SN Business & Economics, Springer, vol. 2(8), pages 1-23, August.

    More about this item

    Keywords

    Functional distribution of income; Factor shares; Aggregate demand; Top incomes; Gini index;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy

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