Distribution and growth. A dynamic Kaleckian approach

This paper studies the effects of an (exogenous) increase of nominal wages on profits, output and growth. The paper is inspired by an article of citet{kal-1991b}, who concentrated on the effects on total profits. The paper develops a model that explicitly considers the dynamics of demand, prices, profits and investment. The outcomes of the initial wage rise are found to be path-dependent and crucially affected by the firms' initial response to an increase in demand and a decrease in profit margins. The present model, which relates to other Post Keynesian/Kaleckian contributions, can offer an alternative to the mainstream approach to the analysis of the effects of wage increases