nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2018‒03‒19
thirteen papers chosen by
Karl Petrick
Western New England University

  1. Introducing minimum wages in Germany: Employment effects in a post Keynesian perspective By Heise, Arne; Pusch, Toralf
  2. Reclaiming the university: Transforming economics as a discipline By Heise, Arne
  3. "Income Distribution, Household Debt, and Aggregate Demand: A Critical Assessment" By J. W. Mason
  4. Distribution, wealth and demand regimes in historical perspective. USA, UK, France and Germany, 1855-2010 By Engelbert Stockhammer; Joel Rabinovich; Niall Reddy
  5. Absolute Poverty: When Necessity Displaces Desire REVISED By Robert C. Allen
  6. The theory of exploitation as the unequal exchange of labour By Roberto Veneziani; Naoki Yoshihara
  7. Steuart, Smith, and the ‘system of commerce’: international trade and monetary theory in late-18th century british political economy By Maurício C. Coutinho; Carlos Eduardo Suprinyak
  8. The role of natural resources in production: Georgescu-Roegen/ Daly versus Solow/ Stiglitz By Quentin Couix
  9. Rethinking macroeconomic policies for full employment and inclusive growth some elements By Parisotto, Aurelio.; Ray, Nikhil.
  10. Workers of the world unite (or not?) The effect of ethnic diversity on the participation in trade unions By Benos, Nikos; Kammas, Pantelis
  11. An empirical analysis of state fragility and growth: The impact of state ineffectiveness and political violence By Ines A. Ferreira
  12. What If Supply-Side Policies Are Not Enough? The Perverse Interaction Of Exibility And Austerity By Giovanni Dosi; Marcelo C. Pereira; Andrea Roventini; Maria Enrica Virgillito
  13. Testing a Goodwin model with general capital accumulation rate By Matheus R. Grasselli; Aditya Maheshwari

  1. By: Heise, Arne; Pusch, Toralf
    Abstract: There has been a long discussion about the employment impact of minimum wages and this discussion has recently been renewed with the introduction of an economy-wide, binding minimum wage in Germany in 2015. In traditional reasoning, based on the allocational approach of modern labour market economics, it has been suggested that the impact is clearly negative on the assumption of a competitive labour market and clearly positive on the assumption of a monopsonistic labour market. Unfortunately, both predictions conflict with the empirical findings, which do not show a clear-cut impact of significant size in any direction. As an alternative, a Post Keynesian twosector model including an employment market is presented here. Its most likely prediction of a negligible employment effect and a sectoral shift is tested against the German case of an introduction of a statutory minimum wage in 2015. Despite substantial wage increases in the low wage sector, our empirical analysis reveals very low overall employment loss of about 33,000 labourers as a result of a small sectoral shift from low wage industries to higher wage industries.
    Keywords: Post Keynesianism,minimum wage,aggregate demand,aggregate supply
    JEL: B50 E12 E23 J31
    Date: 2018
  2. By: Heise, Arne
    Abstract: Economics as a discipline is currently in disarray. In the aftermath of the global financial crisis, academic experts, students, commentators, practitioners and politicians all questioned the status of academic economics and many called for a 'new economic thinking'. Nearly a decade later, however, there is little evidence of a transformation in research and teaching. Furthermore, economic policy based on mainstream economics is still prevalent. It is therefore necessary to consider how the discipline needs be transformed and thereby to provide an explanation for the resilience of the current mainstream. The present study first clarifies what is meant by a transformation of economics as a discipline, since this remains an ill-defined term and may be interpreted in very different ways. It then establishes the conditions of a successful transformation of the discipline in terms of intra-disciplinary and extra-disciplinary factors. The paper argues that economics as a discipline cannot be expected to trigger this transformation by itself (i.e. via self-regulation), since the 'market for economic ideas' is prone to market failure. In addition, the influence of external factors and actors on the market may serve to distort the congruence between the individual researcher's utility and societal welfare. External incentives are therefore required to establish constitutional guardrails that ensure fair competition between ideas.
    Keywords: pluralism,transformation,mainstream economics,heterodox economics,regulation
    JEL: A14 B40 B50
    Date: 2018
  3. By: J. W. Mason
    Abstract: During the period leading up to the recession of 2007-08, there was a large increase in household debt relative to income, a large increase in measured consumption as a fraction of GDP, and a shift toward more unequal income distribution. It is sometimes claimed that these three developments were closely linked. In these stories, the rise in household debt is largely due to increased borrowing by lower-income households who sought to maintain rising consumption in the face of stagnant incomes; this increased consumption in turn played an important role in maintaining aggregate demand. In this paper, I ask if this story is consistent with the empirical evidence. In particular, I ask five questions: How much household borrowing finances consumption spending? How much has monetary consumption spending by households increased? How much of the rise in household debt-income ratios is attributable to increased borrowing? How is household debt distributed by income? And how has the distribution of consumption spending changed relative to the distribution of income? I conclude that the distribution-debt-demand story may have some validity if limited to the housing boom period of 2002-07, but does not fit the longer-term rise in household debt since 1980.
    Keywords: Consumption; Debt Dynamics; Household Debt; Income Inequality; National Income and Product Accounts
    JEL: D31 E21
    Date: 2018–03
  4. By: Engelbert Stockhammer; Joel Rabinovich; Niall Reddy
    Abstract: Most empirical macroeconomic research limited to the period since World War II. This paper analyses the effects of changes in income distribution and in private wealth on consumption and investment covering a period from as early as 1855 until 2010 for the UK, France, Germany and USA, based on the dataset of Piketty and Zucman (2014). We contribute to the post-Keynesian debate on the nature of demand regimes, mainstream analyses of wealth effects and the financialisation debate. We find that overall domestic demand has been wage-led in the USA, UK and Germany. Total investment responds positively to higher wage shares, which is driven by residential investment. For corporate investment alone, we find a negative relation. Wealth effects are found to be positive and significant for consumption in the USA and UK, but weaker in France and Germany. Investment is negatively affected by private wealth in the USA and the UK, but positively in France and Germany.
    Keywords: historical macroeconomics, demand regimes, Bhaduri-Marglin model, wealth effects, financialisation
    JEL: B50 E11 E12 E20 E21 N10
    Date: 2018–03
  5. By: Robert C. Allen (Division of Social Science)
    Abstract: A new basis for an international poverty measurement is proposed based on linear programming for specifying the least cost diet and explicit budgeting for non-food spending. The use of linear programming to specify the diet ensures that the diets reflect local prices while maintaining a uniform standard across countries that is defined in terms of nutritional requirements for good health. The non-food spending includes clothing, bedding, foot ware, fuel, and lighting. The specification varies between countries depending on climate. Nonfood spending also includes rent for accommodation shifting the poverty line between rich and poor countries to reflect the great differences in real estate costs. This approach is superior to the World Bank’s ‘$-a-day’ line because it is (1) clearly related to survival and well being, (2) comparable across time and space since the same nutritional requirements are used everywhere while non-food spending is tailored to climate, (3) adjusts consumption patterns to local prices, (4) presents no index number problems since solutions are always in local prices, and (5) requires only readily available information. The new approach implies much more poverty than the World Bank’s, especially in Asia.
    Date: 2017–06
  6. By: Roberto Veneziani (Queen Mary University of London); Naoki Yoshihara (University of Massachusetts Amherst, Hitotsubashi University, and Kochi University of Technology)
    Abstract: This paper analyses the normative and positive foundations of the theory of exploitation as the unequal exchange of labour (UEL). The key intuitions behind all of the main approaches to UEL exploitation are explicitly analysed as a series of formal claims in a general economic environment. It is then argued that these intuitions can be captured by one fundamental axiom - called Labour Exploitation - which defines the basic domain of all UEL exploitation forms and identifies the formal and theoretical framework for the analysis of the appropriate definition of exploitation.
    Keywords: Exploitation, Unequal Exchange of Labour, axiomatic analysis
    JEL: D63 B51
    Date: 2017–05–15
  7. By: Maurício C. Coutinho (Universidade de Campinas); Carlos Eduardo Suprinyak (Cedeplar/UFMG)
    Abstract: Though contemporaries, Adam Smith and Sir James Steuart are commonly portrayed as men belonging to different eras. Whereas Smith went down in history both as founder of Classical Political Economy and patron of economic liberalism, Steuart became known as the last, outdated advocate of mercantilist policies in Britain. Smith himself was responsible for popularizing the notion of the ‘system of commerce’ as an approach to political economy that dominated British thought during the early modern period. As it evolved into a historiographical concept, the mercantile system came to be seen as an international trade theory grounded upon the fallacious doctrine of the favorable balance of trade. In the Wealth of Nations, however, Smith puts limited emphasis on international trade as a theoretical concern. His analysis of the subject, moreover, was marred by lack of analytical clarity, which caused him to be chastised by some among his followers who adhered more enthusiastically to the free trade cause. Given Smith’s doubtful credentials as a free trade theorist, in this paper we try to analyze the reasons that led him and Steuart to be historically placed on opposite sides of the mercantilist divide. To do so, we analyze the works of both authors in depth, showing that their disagreements in matters of economic policy have chiefly to do with different views about the role of money in the economy. Additionally, we explore how early-19th century writers helped forge the intellectual profiles of both Steuart and Smith.
    Keywords: Free trade, money, mercantilism, Adam Smith, James Steuart
    JEL: B11 B12 E40 F10
    Date: 2018–02
  8. By: Quentin Couix (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper proposes a historical and epistemological account of one of the key controversy between natural resources economics and ecological economics, lasting from early 1970s to the end of 1990s. It shows that the theoretical disagreement on the scope of the economy's dependence to natural resources, such as energy and minerals, has deep methodological roots. On one hand, Solow's and Stiglitz's works are built on a “model-based methodology”, where the model precedes and supports the conceptual foundations of the theory and in particular the assumption of “unbounded resources productivity”. On the other hand, Georgescu-Roegen's counter-assumption of “thermodynamic limits to production”, later revived by Daly, rest on a methodology of “interdisciplinary consistency” which considers thermodynamics as a relevant scientific referent for economic theory. While antagonistic, these two methodologies face similar issues regarding the conceptual foundations that arise from them, which is a source of confusion and of the difficult dialogue between paradigms.
    Keywords: natural resources,thermodynamics,growth,sustainability,model,theory,methodology
    Date: 2018–01
  9. By: Parisotto, Aurelio.; Ray, Nikhil.
    Abstract: This paper reviews recent evidence and research by ILO and others concerning monetary, fiscal, exchange rate and capital account management policies, looking also at issues of policy coordination and the role of social dialogue. It argues that the rethinking of macroeconomics that is underway is providing ammunition for more active policies to strengthen labour market resilience in economic downturns; to support productive investment and private sector development, especially small and medium-sized enterprises;and to promote employment, productivity and stable and inclusive growth. The paper sets forth key elements of pro-employment macroeconomic frameworks as they were outlined by the ILO tripartite constituents at the 2014 International Labour Conference. Finally, it suggests areas for debates and research to inform the work of the ILO and other international organizations in the future.
    Keywords: employment creation, macroeconomics, monetary policy, fiscal policy, exchange rate
    Date: 2017
  10. By: Benos, Nikos; Kammas, Pantelis
    Abstract: This paper advances the hypothesis that workers participate less in trade unions in more ethnically fragmented societies. This hypothesis dates back at least to Marx and Engels who first suggested that increased ethnic and racial antipathies among workers undermine class consciousness and weaken the unity of the working class in the United States. Building on a set of innovative instruments derived from biogeography and more precisely the parasite-stress theory of values and sociality (Fincher and Thornhill, 2008), our analysis seeks to exploit exogenous sources of variations in ethnic diversity and establish a convincing relationship between ethnic diversity and trade union density across countries. In turn, our analysis investigates the above mentioned relationship by using the European Social Survey (ESS) dataset and in particular a sample of migrants of different ancestry residing in ESS countries. Consistent with the prediction of the theory, both layers of the empirical analysis provide evidence of a strong, negative and highly significant relationship between ethnic diversity and the decision of the workers to participate in trade unions. Obtained empirical findings remain highly robust across a number of alternative empirical specifications and estimation techniques.
    Keywords: trade unions, ethnic diversity, assortative sociality, parasites
    JEL: C26 J15 J51
    Date: 2018–03–01
  11. By: Ines A. Ferreira
    Abstract: The role of the state in promoting development is well established in the institutional economics literature. Yet, in recent decades the attention has been turned to the opposite side of the spectrum. Facing high levels of poverty and showing a slower progress in achieving development outcomes, fragile states raised concerns among the development community, which felt urged to assist them. However, the quantitative empirical literature examining the link between state fragility and development is still relatively scanty. This paper sheds light on this issue by proposing an approach that comprises indicators for state ineffectiveness and political violence as two dimensions of state fragility, and by using data for the period 1993–2012 in order to understand their impact on growth. The results from standard econometric methods suggest that there is a significant negative effect of state ineffectiveness on economic growth, whereas they fail to find any significant impact of political violence.
    Date: 2018
  12. By: Giovanni Dosi; Marcelo C. Pereira; Andrea Roventini; Maria Enrica Virgillito
    Abstract: In this work we develop a set of labour market and fiscal policy experiments upon the labour and credit augmented “Schumpeter meeting Keynes" agent-based model. The labour market is declined under two institutional variants, the “Fordist" and the “Competitive" setups meant to capture the historical transition from the Fordist toward the post “Thatcher-Reagan" period. Inside these two regimes, we study the different effects of supply-side active labour market policies (ALMPs) vs. demand-management passive labour market ones (PLMPs). In particular, we analyse the effects of ALMPs aimed at promoting job search, and at providing training to unemployed people. Next, we compare the effects of these policies with unemployment benefits simply meant to sustain income and therefore aggregate demand. Considering the burden of unemployment benefits in terms of public budget, we link such provision with the objectives of the European Stability and Growth Pact. Our results show that (i) an appropriate level of skills is not enough to sustain growth when workers face adverse labour demand; (ii) supply-side policies are not able to reverse the perverse interaction between exibility and austerity; (iii) PLMPs outperform ALMPs in reducing unemployment and workers' skills deterioration; and (iv) demand-management policies are better suited to mitigate inequality and to improve and sustain long-run growth.
    Keywords: Industrial-relation Regimes, Flexibility, Active Labour Market Policies, Austerity, Agent-based models
    JEL: C63 E24 H53 J88
    Date: 2018–02
  13. By: Matheus R. Grasselli; Aditya Maheshwari
    Abstract: We perform econometric tests on a modified Goodwin model where the capital accumulation rate is constant but not necessarily equal to one as in the original model (Goodwin, 1967). In addition to this modification, we find that addressing the methodological and reporting issues in Harvie (2000) leads to remarkably better results, with near perfect agreement between the estimates of equilibrium employment rates and the corresponding empirical averages, as well as significantly improved estimates of equilibrium wage shares. Despite its simplicity and obvious limitations, the performance of the modified Goodwin model implied by our results show that it can be used as a starting point for more sophisticated models for endogenous growth cycles.
    Date: 2018–03

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