18. Endogenous Aspirations in a Model of Cyclical Growth

This chapter provides an analysis of the effects on Goodwin’s (1967) process of the cyclical accumulation of capital which follow from employing a money wage Phillips-Curve that depends both on the rate of employment and on the rate of growth of the considered economy. This latter influence enters the scenario when the objective of the wage bargaining process is formulated in more detail. Our simple approach here is to assume that this objective is determined by the rate of inflation plus the rate of labor productivity growth and to assume additionally that more will be demanded in periods of very rapid growth, while the opposite occurs in times of subnormal growth. The target of workers’ wage claim will therefore be treated as endogenous, i.e., depending on the particular phase of the growth cycle to be analyzed below. Our above assumption represents one main modification to be incorporated into Goodwin’s well-known growth cycle model, whose real wage Phillips-curve is thereby reformulated in a twofold way (besides assuming that the rate of change of money wages depends on employment and the benchmark of a constant share of wages in an endogenous manner). We now have to formulate a hypothesis concerning the price-level, too. For the sake of simplicity we shall adopt a post-Keynesian mark-up equation here, but shall neglect – as in the original Goodwin model – all influences of effective demand. This is not to say that we regard these latter influences as purely secondary, but in the present chapter we prefer to concentrate on the interaction of wage-bargaining, mark-up induced inflation, accumulation, and employment without offering an explanation of the limits for the chosen mark-up. Focusing on the conflict over income-distribution and its effects on capital accumulation is – at least in our opinion – of some theoretical interest, since this conflict is, e.g., largely neglected in the monetarist approach to the phenomenon of stagflation, where a monotonic relationship between inflation and (un)employment is generally postulated. As we shall see in the following sections this monetarist viewpoint seems to be overly simplified.