Growth models

Operationalizing growth models

 * Identifying growth models and investigating how they change
 * Are the electoral majorities for growth models?

Profit-led vs. wage-led

 * Answered by the question of whether the rate of utilization increases or decreases with the proﬁt share, that is, whether aggregate demand is wage-led or proﬁt-led
 * What happens to the profit rate as the economy approaches full capacity? To answer this, we must ask whether the proﬁt share depends on utilization through the distributive curve:
 * If the profit share decreases as the economy approaches full capacity, this is called profit squeeze because the labor market becomes tighter and real wages rise at the expense of profitability → wage-led aggregate demand
 * If the profit increases as the economy approaches full capacity → proﬁt-led aggregate demand or wage squeeze (Kaldorian) economy because as utilization increases, distribution must shift in favor of proﬁts in order to maintain the current level of investment

Profit-led

 * Higher profit share raises the profit rate, leading to an increase in the gross growth rate of capital
 * The increase in the proﬁt share can have offsetting effects on demand: a higher proﬁt share reduces consumption demand by redistributing income away from workers, but increases investment demand, through raising proﬁtability
 * Thus, for proﬁt-led growth to occur, the increase in investment demand must dominate the reduction in consumption demand.

Wage-led

 * Wage-led growth occurs because the
 * Since the profit-share elasticity of investment (propensity) is low, there is no dampening effect through changes in proﬁtability from the wage share increase at all
 * The utilization-elasticity of investment (propensity) is in wage-led growth bigger than 0. Here, a higher wage share increases workers’ consumption demand which in turn has a positive feedback effect on investment (and the profit rate, not profit share), through raising the rate of utilization.