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Wages, income distribution and economic growth in Scandinavia

Bengtsson, Erik LU and Stockhammer, Engelbert (2018) In Lund Papers in Economic History. General Issues
Abstract
Wage restraint plays an important role in the conventional economic history explanation of the post-war golden growth experience of industrialized economies. Conversely, wage increases harming investment and increasing unemployment have been proffered as explanations for some of the high unemployment during the interwar period. This article argues that the conventional account implicitly only considers effects of wage growth on investment and not the advantageous effects on consumption. Thus, the evaluation of the effects on GDP growth is lop-sided. We employ a Post-Keynesian model to estimate effects of growth in the wage share of national income on consumption, investment, exports and imports separately, and weigh the effects together to... (More)
Wage restraint plays an important role in the conventional economic history explanation of the post-war golden growth experience of industrialized economies. Conversely, wage increases harming investment and increasing unemployment have been proffered as explanations for some of the high unemployment during the interwar period. This article argues that the conventional account implicitly only considers effects of wage growth on investment and not the advantageous effects on consumption. Thus, the evaluation of the effects on GDP growth is lop-sided. We employ a Post-Keynesian model to estimate effects of growth in the wage share of national income on consumption, investment, exports and imports separately, and weigh the effects together to estimate total effects on GDP growth, in Scandinavia (Denmark, Norway and Sweden) 1900–2010. Furthermore, we estimate the positive effects of wage pressure on productivity, showing it to be significant and positive in all three countries. We show that the postwar wage push had small positive effects on GDP growth in Denmark and Sweden, and a small negative effect in Norway. Thus, wage restraint is not a valid explanation for the postwar growth miracle. We propose a more comprehensive macroeconomic framework for understanding the implications of labour-capital distribution. (Less)
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author
organization
publishing date
type
Working Paper
publication status
published
subject
keywords
functional income distribution, inequality, consumption, investment capabilities, Scandinavia, Bhaduri-Marglin model, E12, N1, N14
in
Lund Papers in Economic History. General Issues
issue
2018:179
language
English
LU publication?
yes
id
746ccae2-cb7c-417e-951f-79cb330852aa
date added to LUP
2018-10-11 14:08:23
date last changed
2018-11-21 21:42:21
@misc{746ccae2-cb7c-417e-951f-79cb330852aa,
  abstract     = {Wage restraint plays an important role in the conventional economic history explanation of the post-war golden growth experience of industrialized economies. Conversely, wage increases harming investment and increasing unemployment have been proffered as explanations for some of the high unemployment during the interwar period. This article argues that the conventional account implicitly only considers effects of wage growth on investment and not the advantageous effects on consumption. Thus, the evaluation of the effects on GDP growth is lop-sided. We employ a Post-Keynesian model to estimate effects of growth in the wage share of national income on consumption, investment, exports and imports separately, and weigh the effects together to estimate total effects on GDP growth, in Scandinavia (Denmark, Norway and Sweden) 1900–2010. Furthermore, we estimate the positive effects of wage pressure on productivity, showing it to be significant and positive in all three countries. We show that the postwar wage push had small positive effects on GDP growth in Denmark and Sweden, and a small negative effect in Norway. Thus, wage restraint is not a valid explanation for the postwar growth miracle. We propose a more comprehensive macroeconomic framework for understanding the implications of labour-capital distribution.},
  author       = {Bengtsson, Erik and Stockhammer, Engelbert  },
  keyword      = {functional income distribution,inequality,consumption,investment capabilities,Scandinavia,Bhaduri-Marglin model,E12,N1,N14},
  language     = {eng},
  note         = {Working Paper},
  number       = {2018:179},
  series       = {Lund Papers in Economic History. General Issues},
  title        = {Wages, income distribution and economic growth in Scandinavia},
  year         = {2018},
}