Wages, Income Distribution and Economic Growth: Long-Run Perspectives in Scandinavia, 1900–2010

Abstract

ABSTRACT This article views analysis of the influence of capital–labour income distribution on economic growth from a historical perspective, using data from 1900 onwards. We study the three Scandinavian countries of Sweden, Denmark and Norway, where conventional accounts of the postwar growth miracles in these small, open economies have emphasized the role of wage restraint, favouring profits and investment over consumption. Instead, we show that the 1950s and 1960s saw growing wage shares, and use the Bhaduri–Marglin model to econometrically analyse the effects on consumption, investment, exports and imports and the total effects on GDP. Furthermore, we estimate the effects of wage pressure on labour productivity. Growing wage shares have had a small positive effect on GDP growth in Sweden, Denmark and Norway, and the positive effect was larger in the postwar period than in other times. However, the positive growth effects of wage pressure were modest as the demand was only weakly wage-led. In contrast, supply side effects were large. Labour productivity was stimulated by vigorous wage increases, as argued by the Swedish Rehn–Meidner model as well as by post-Keynesian economists. The present investigation opens several further avenues for research on the distribution–growth nexus.