Overhead Labour Costs in a Neo-Kaleckian Growth Model with Autonomous Non-Capacity Creating Expenditures

A notable feature of income distribution is the widening wage differential among workers: there is a redistribution in favour of managers at the detriment of ordinary workers. The paper incorporates this distinction between overhead managerial labour and direct labour into a neo-Kaleckian growth model with target-return pricing, where an autonomously growing demand component ultimately determines the long-run path of an economy. Our aim is to explore the role of overhead labour costs in the coevolution of income distribution and economic growth. We find that the profit share becomes an increasing function of the rate of capacity utilization, implying that empirical research based on the post-Kaleckian specification of investment is likely to be biased in finding a profit-led regime. Our model also features convergence to a fully adjusted position. We examine the parametric conditions under which the model achieves a wage-led growth regime in the long run, in the restricted sense that both the average rates of accumulation and utilization decrease during the transitional dynamics arising from an upward adjustment of the normal profit rate. Moreover, it is shown that a more equitable wage distribution between managers and ordinary workers will strengthen the wage-led nature of the economy.