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Growth is wage-led in the long run

Author

Listed:
  • Jose Barrales-Ruiz

    (Center of Economics for Sustainable Development (CEDES), Faculty of Economics and Government, Universidad San Sebastian, Chile.)

  • Ivan Mendieta-Muñoz

    (Department of Economics, University of Utah, USA)

  • Codrina Rada

    (Department of Economics, University of Utah, USA)

  • Rudiger von Arnim

    (Department of Economics, University of Utah, USA)

Abstract

The literature on the empirical linkages between economic growth (or other measures of macroeconomic performance) and the functional distribution of income is copious on the short run. The sustained and simultaneous decline in average rates of real GDP growth and the labor share of income in the US in recent decades has led to renewed interest in the long run, in light of the hypothesis of inequality-induced secular stagnation. This paper employs a vector error correction model with time-varying parameters and stochastic volatility to estimate the long run interaction between real GDP growth, labor share and the unemployment rate. Our key result indicates that a lower labor share is associated with a decline in the growth rate: economic growth is wage-led in the long run.

Suggested Citation

  • Jose Barrales-Ruiz & Ivan Mendieta-Muñoz & Codrina Rada & Rudiger von Arnim, 2025. "Growth is wage-led in the long run," Working Papers 2505, New School for Social Research, Department of Economics.
    • Handle: RePEc:new:wpaper:2505
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    File URL: http://www.economicpolicyresearch.org/econ/2025/NSSR_WP_052025.pdf
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    More about this item

    Keywords

    Growth and distribution; stagnation; demand regime;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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