Capital efficiency increases, since for a same physical amount of capital equipment, its value declines. This may be unfavorable to wages and favorable to profits.
Wage and Profit-led Growth: The Limits to Neo-Kaleckian Models and a Kaldorian Proposal
This behavior is inherently unstable because it encourages the entry of new entrepreneurs attracted by the importance of profits. Also, Robinson considers that entrepreneurs abandoning their Malthusian behavior seek to have more machines whose unit value is lower; then their investment rate remains the same in value. Therefore, consumer goods sector needs more labor and capital goods sector does not dismiss anymore.
The result is a pressure on employ employment which may be favorable to the employees and unfavorable to entrepreneurs. Evolution of wages can be faster than that of productivity. This situation encourages entrepreneurs to maintain their markup rates by raising prices, which reduces real wages, or to increase productivity of labor in the sector of consumer goods.
In this case, technical progress bias is named of type capital using Such a choice leads to a reduction of the workforce engaged in the sector of consumer goods. Pressure on employment decreases and the increase in wages may be lesser than that of productivity. Appreciation of currency effects can be compared to those of capital saving technical progress. Indeed, imports become cheaper and they are composed mainly by capital equipment and intermediate goods. This alteration in relative prices is similar to the effects of capital saving technical progress, as it is defined by Joan Robinson.
Capital efficiency grows. Entrepreneurs abandon their Malthusian behavior and increase their investment rate in physical terms while keeping it in value. Pressure on employment increases, which creates a favorable situation for an increase in wages, unless entrepreneurs seek to increase their markup rate by means of prices growth, in which case share of wages declines relatively to that of profits. Excepting this case, appreciation of national currency would be one of the causes of share of wages increase in value added.
This explanation is attractive but it suffers from many flaws. It is not certain that appreciation of the currency enhances capital efficiency and leads to an increase of share of wages in income. Indeed, appreciation of exchange rate has also another effect which can counteract, totally or in part, the positive effect on capital valorization. Wage expressed in dollars increases. And this effect is especially important because production of goods is labor intensive. Unit cost of labor suffers the opposing influences of productivity growth and a growing cost of labor.
Competitiveness decreases more or less strongly according to growth of labor cost. What is earned on capital value may be lost on wages Such a situation can lead to an "early" deindustrialization see Boxed Text 2 and to a decline in industrial employment We cannot deduce from currency appreciation an increase in share of wages in income. Maintenance of share of wages in income, or even its improvement during the 's is then explained by other factors. Labor market is changing: employment conditions and wages determinants are no longer the same.
Less informal jobs, increase in minimum wage beyond productivity and wage bargaining by branches explain in part increase of share of wages in revenue. Influence of markup rate and the contributions of analyses in terms of distributive conflict in Kaleckian approaches. In Kaleckian analyses, entrepreneurs intervene in two markets: that of goods where they fix prices, and that of labor where they purchase labor force. Workers intervene, them, only in labor market. Offer is first more specifically investment , demand is in second place.
Market can then correct prices if demand is insufficient in relation to supply and vice versa. Thus, fixing of prices reflects the strategy of enterprises: it depends on their monopoly power 23 and aims to strengthen this power in a given time horizon, via investment permitted by the wanted markup rate. Specifically, amount of profits depends on monopoly power, production capacity using degree, direct production costs wages and raw materials and indirect costs interest rate and payment of dividends.
In the Kaleckian approach 24 inflation rate expresses the discrepancy between investment rate wanted by the entrepreneurs and real wage rate that they must pay to workers. Inflation rate also expresses the divergence between the existing real wage and that desired by workers. According to Ramos, "the role of inflation is to make compatible, ex-post, the income distribution that, ex ante , did not permit equilibrium in goods market" Distributive conflict is then a key element to understand at the same time economic growth, price formation and income distribution.
Industry's average productivity is small compared to that observed in industrialized countries but also to that of exporting raw materials sector. Dispersion on industry's levels of productivity is particularly important, higher than that observed in industrialized countries.
Industrial structure is deeply heterogeneous. With trade liberalization, increased competitiveness constraints and exchange rates appreciation, industry's average level of productivity tends to grow but heterogeneity remains; certain industries attain a high level of average productivity, and those whose productivity levels are too low disappear. Nevertheless, there is nothing to indicate that convergence of productivity levels occurs.
Most threatened firms by international competition and by national currency appreciation are seeking at the same time protection on the part of the government and, in case of failure, they compress their markup rate to withstand international competition. Those who cannot face this competition disappear. In general, and excepting certain sectors, markup rates are lower than they were before trade liberalization. Three other variables play for a reduction in markup rate: the end of high inflation, access much easier than in the past to credit, and evolution of distributive conflict.
We saw that the end of high inflation in the s explains the loss of influence of this variable on real wages. Purchasing power of workers has been less cut off by rising prices that it could be in the past with high inflation, including if indexation mechanisms of wages to prices are established.
Profits, Wages, and Productivity in the Business Cycle | SpringerLink
End of high inflation also modified entrepreneurs' behavior: market is more readable, relative prices are more reliable indicators and research of a high markup rate to prevent inherent risk derived from market dysfunctions in a period of high inflation is no longer necessary. In relation to GDP, credit level for enterprises is low compared to that in industrialized countries or in Asian emerging economies. But it grows fast. Now we can see that if this level is low, investment funding will require significant markups and vice versa.
Said otherwise, for the same investment rate, average markup rate will be more important and access to credit will be low and vice versa. Easier access to credit is therefore a favorable factor in order to reduce markup rates, unless access to credit faces very high interest rates, which in many sectors is no longer the case, including Brazil.
Finally, distributive conflict is changing in the s. Decline in unemployment rate has partially moved social forces correlation in favor of workers, particularly in favor of those whose qualifications are strongly requested by entrepreneurs.
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Governments' decision for increasing minimum wage beyond average productivity takes part of the increase in average wage. Wage negotiations by branches promote increases in wages especially in Argentina. During the s causes of degradation of share of wages in income seem obvious, but maintenance or even improvement of wages share in revenues in the 's seems a "surprise", a "reproach to economic theory". Openness to international trade has not decreased; finance is always present and weighs heavily on share of wages as well as on the fraction of profits destined to investment. Nevertheless, evolution of shares in income has been inverted.
This observation does not mean that the influence of these factors has declined but that other factors are involved in the opposite direction.
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Economic, social and political context has changed and has led to a change in entrepreneurial behavior with regard to markup rates and especially to an institutional evolution of distributive conflict. Contributions of the various theories outlined above are important but it is not sufficient to explain evolution of relative shares in revenues. We need to reconsider the role of the State in the economy. Its role is not confined to react to "market disorders" when they emerge. The State is in the market. Market disorders obey too to its active presence and its interventions on it, but also the State is present in the overriding of these disorders.
Judge and part at a time, role of the State on labor market can be decisive. It was determinant in a certain degree during the s which in part explains evolution of relative shares in income. However, apparent stability in relative shares in income, or even the slight increase in wages share, were carried out parting from a depressed level of economic activity, legacy of the s and the s, as if they had reached a floor, a "trough" difficult to cross.
See too Panigo, D. See too De la Garza, E. However, they are radically different. Is it possible that globalization impacts on the evolutions of wages and productivity are being offset by other effects acting to the contrary? Trade globalization, financial globalization, diffusion of technical progress and aggravation of distributive conflicts do not produce the same effects on income distribution during the s and in the s in Latin-American semi-industrialized economies. Increasing share of profits in income during the s does not appear to offer particular interpretation problems, but during the s apparent stability on relative shares in revenue, or even the increase in wages share, seems to be a "surprise" in Kaldor's opinion, or even a " mystery " for Schumpeter, or well finally " a reproach to economic theory " according to Robinson.