Is the Long-run Equilibrium Wage- led or Profit-led A.pdf

Kyoto University, Graduate School of Economics Research Project Center Discussion Paper Series Is the Long-run Equilibrium Wage-led or Profit-led? A Kaleckian Approach Hiroaki Sasaki Discussion Paper No. E-11-002 Research Project Center Graduate School of Economics Kyoto University Yoshida-Hommachi, Sakyo-ku Kyoto City, 606-8501, Japan April 20 11 Is the Long-run Equilibrium Wage-led or Profit-led? A Kaleckian Approach Hiroaki SASAKI Graduate School of Economics, Kyoto University, Yoshida-Honmachi, Sakyo-ku, Kyoto 606-8501, Japan; e-mail: sasaki@econ.kyoto-u.ac.jp Abstract This paper presents a Kaleckian growth model in which (i) the rate of capacity uti- lization, the profit share, and the rate of employment are adjusted in the medium run, and (ii) the normal rate of capacity utilization and the expected rate of growth are ad- justed in the long run. Both the Kalecki type and the Marglin-Bhaduri type investment functions are introduced. Using the model, we examine which regime is obtained in the long-run equilibrium, the wage-led regime or the profit-led regime. Keywords: Kaleckian model; long-run equilibrium; wage-led; profit-led JEL Classification : E12; E24; O41 1 Introduction How do changes in wages affect the performance of economy? On the one hand, wages are costs: an increase in wages lowers the profit of the firms, and thus, decreases the investment of firms, which consequently, has a negative effect on production and employment. On the other hand, wages are income: an increase in w