Is Aggregate Demand Wage-led or Profit-led? A Global Model

There has been a significant decline in the wage share in both the developed and developing world which has coincided with the introduction of neoliberal policy reforms since the 1980s. The promise of these reforms was to stimulate private investment and exports, which was expected in turn to generate higher growth, more jobs and trickledown effects. The reasons for this fall have recently been the subject of a growing amount of literature that has tried to pin down the effects of technology, globalization, and changes in labour market institutions (see, inter alia, IMF, 2007; OECD, 2007; EC, 2007; ILO/IILS, 2011; Rodrik, 1997; Diwan, 2001; Harrison, 2002; Onaran, 2009; Rodriguez and Jayadev, 2010; Stockhammer, 2011). This chapter offers a theoretical and empirical assessment of the effects of this pro-capital redistribution of income on growth at both national and global levels.