International Effects On The Distribution Of Income

I came across this PKSG (Post-Keynesian Study Group) reading list 2016 which “provides introductory and advanced readings for those interested in post-Keynesian economics.”

(h/t Severin Reissl on Facebook)

A recommended reading is Robert Blecker’s international economics written for The Elgar Companion to Post Keynesian Economics edited by John E. King. The chapter can be previewed from Amazon.

One interesting aspect is the distribution of income between profits and wages. Blecker says:

Post Keynesian in the Kaleckian tradition emphasize the feedback effects of international competition onto domestic profit mark-up rates and hence on the distribution of income between profits and wages. When a currency appreciates (or domestic costs rise relative to foreign), oligopolistic firms squeeze price-cost margins in order to ‘price-to-market’, which in turn leads to a fall in the profit share with possible negative repercussions for investment and growth (although this may be offset by boost to domestic consumption arising from higher real wages and labour income). When a currency depreciates (or domestic costs fall relative to foreign), the opposite happens as domestic oligopolies are able to raise their price-cost margins without losing market share, income is distributed from wages to profits, and the potential repercussions for investment and growth and consumption are all reversed. Outcomes in which a redistribution of income towards wages is expansionary are known as ‘wage-led’ regimes, while outcomes in which a redistribution towards profits is expansionary are ‘profit-led’. Mainstream economists have recognized the flexibility of profit margins in response to exchange-rate fluctuations – what they call ‘partial pass-through’ – but they have not analysed the feedback effect onto income distribution, aggregate demand and economic growth.

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