21. The Goodwin Distributive Cycle After Fifteen Years of New Observations

In this chapter, we reconsider the simple empirical evidence for the existence of a long-phased cycle in the state variables employment rate e and wage share v that we have collected in Flaschel and Groh (1995) for a number of industrialized market economies, see the preceding chapter. We do this on the basis of 15 years of further observations and now also with quite modern econometric techniques. Our findings will be that – in the case of the US economy – the only three-fourths closed long phase loops we observed in this earlier paper can now be confirmed as by and large closed, giving in sum an approximately 50 years long cycle in employment rates and the wage share in its interaction with the six to seven business cycles observed in the US economy between 1960 and 2006. As basic theoretical explanation for the occurrence of such long-phased cycles the reference to the seminal papers by Richard Goodwin (1967), augmented by Rose (1967) type limit cycle considerations, and the many papers that are based on this work suggests itself. By and large this means that we consider a growth cycle model where the steady state of the model is repelling and where there are forces far off this steady state which imply constant or falling employment rates at the full employment ceiling e = 1 and falling wage shares in situations where income distribution squeezes profitability to a significant degree. We have supplied in Flaschel and Groh (1995) a model example for such a situation and will recapitulate in this chapter only the absolutely necessary ingredients that make a Goodwin–Rose growth cycle dynamics repelling at their interior steady state and bounded within the phase space [0, 1]². The implication of such a scenario will be a clockwise motion of the state variables (v, e) in the phase space [0, 1]² as it has been observed for a number of countries in Flaschel and Groh (1995).