Income distribution and aggregate demand: A global Post-Keynesian model

By Özlem Onaran, Giorgos Galanis

PKES Working Paper 1304

April 2013

This paper estimates the effects of a change in the wage share on growth at a national and global level in the G20 countries. A decrease in the wage share leads to lower growth in the euro area, Germany, France, Italy, UK, US, Japan, Turkey, and Korea, whereas it stimulates growth in Canada, Australia, Argentina, Mexico, China, India, and South Africa. However, a simultaneous decline in the wage share in all these countries leads to a decline in global growth. Furthermore, Canada, Argentina, Mexico, and India also contract when they decrease their wage-share along with their trading partners.

Keywords: Wage share, growth, global multiplier, consumption, investment, exports, imports, G20, developed and developing countries

JEL classification: E21 E22 E25 F43