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Wage Participation and Unemployment in Developed Countries

It is well known that real wages in the developed world have stagnated in the last 4 decades. The figure below shows that wage participation in GDP has fallen too (source here).
This has been associated to higher levels of unemployment. A reduction of around 3% in compensation has been associated to an increase of about 5% in unemployment. The connection is the Kaleckian (Marxist) notion (see Kalecki, 1943) that higher unemployment weakens the bargaining power of workers. The advanced economies do look wage-led, in this simple graphical representation.


  1. That's not a Marxist notion. In Marxian economics if wages fall, the rate of profit increases and so should the rate of employment as capital investment takes place.

  2. Philip, I disagree. Marxian economics does lay emphasis on the role of effective demand. What Marxian economics are you referring to?

  3. "Since the capitalist and workman have only to divide this limited value, that is, the value measured by the total labour of the working man, the more the one gets the less will the other get, and vice versa. Whenever a quantity is given, one part of it will increase inversely as the other decreases. If the wages change, profits will change in an opposite direction. If wages fall, profits will rise; and if wages rise, profits will fall." (Karl Marx, "Value, Price, Profit" Chpater III)

  4. Philip, that's an extraordinarily selective reading of Marx, bordering on caricature. Maybe it's applicable to parts of Volume I where Marx abstracts from any realization problems (that is, where the rate of exploitation is sufficient to determine the expected rate of profit), but it's certainly inapplicable to Vols. II and III where realization crises take center stage.

    1. Most Marxian approaches -- for example the SSA school -- assume a trade-off between wages and profits. It characterises an awful lot of the literature. A few Post-Keynesians stress the role of aggregate demand and point to Volume II. But most of those who really are card-carrying Marxists do not.

  5. I agree with you. A few, like Kalecki, stress the role of effective demand and point to volume II. That, I think, was the point being made in the original post.

    1. As a Sraffrian (classical-Keynesian) I don't think I would be classified as a 'card-carrying Marxist.' But note, I have my doubts if Marx would either. He disliked Say's Law very much, even if crisis of realization do not quite get to be a theory of effective demand.


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