Abstract
The 'Goodwin pattern' -- an anti-clockwise rotation in real activity x wage share space recurring at intervals that correspond roughly to the duration of business cycles -- is an enduring feature of high-frequency dynamics in capitalist economies. It is well known that the centre or focus of this rotation shifts over time. More recently, however, the Goodwin pattern seems to have broken down, the wage share no longer increasing as the real economy improves over the course of short-term booms. In this paper, the breakdown of the Goodwin pattern is associated with the consolidation of an `incomes policy based on fear' that is part-and-parcel of neoliberalism. As a result of this in- comes policy based on fear, the institutional structure of the labour market disciplines labour at any rate of unemployment. This decouples wage-share dynamics from the state of the real economy, with the result that as recently witnessed, the wage share is rendered invariant to tightening of the labour market in the course of short-term cyclical booms.
Highlights
According to a substantial empirical literature, capitalist economies are characterized by short-cycles that involve a common empirical signature: the ‘Goodwin pattern’
JEL codes: E11, E12, E25, E64 Keywords: Goodwin pattern, distributional conflict, worker insecurity, incomes policy based on fear
Central to the theory advanced is the notion that contemporary neoliberal capitalism is based on an ‘incomes policy based on fear’ (Cornwall, 1990) that substitutes institutionalized worker insecurity for the ‘threat of the sack’ and, in so doing, loosens the connection between variations in the rate of employment, wage bargaining, and the behaviour of the wage share
Summary
According to a substantial empirical literature, capitalist economies are characterized by short-cycles that involve a common empirical signature: the ‘Goodwin pattern’. The purpose of this paper is to document and furnish a theory of the recent breakdown of the Goodwin pattern. Central to the theory advanced is the notion that contemporary neoliberal capitalism is based on an ‘incomes policy based on fear’ (Cornwall, 1990) that substitutes institutionalized worker insecurity for the ‘threat of the sack’ and, in so doing, loosens the connection between variations in the rate of employment, wage bargaining, and the behaviour of the wage share.
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