On the dynamics of profit-led and wage-led growth

Abstract

This paper examines how variable output and profit share jointly determine investment and saving, while the difference between investment and saving drives the changes in output and profit share. Analysis of the resulting pair of differential equations yields novel implications for the multiplier process. In this more general framework a number of separate strands of the Keynesian-inspired literature can be understood. In particular, the model incorporates both forced saving and profit squeeze to analyse the stability of the dynamical system, and brings out the complex relation between in and out-of-equilibrium profit-led and wage-led regimes.