January 1, 2015

You have the data, here is the employment formula

Comment on 'Wage-led growth'

Blog-Reference

You write: “The most recent empirical studies show that the world economy overall is in a wage-led demand regime ...”

This is good news in several respects. I focus in the following on verification/falsification, i.e., on the relationship between facts and theory.

You write: “An increase in the wage share has several effects on demand and whether actual demand regimes are wage led or profit led is subject to an ongoing academic debate.”

This debate can be quickly resolved. A positive relationship between wage rate, various demand components, and employment is exactly what the structural axiomatic employment function asserts (see 2014, p. 9, eq. (22)).

I wrote on p. 10: “A general increase of the wage rate increases the factor cost ratio in eq. (22) and effects a higher employment. This systemic property follows in direct lineage from the axioms and the condition of product market clearing. It goes without saying that this rectified relationship between wage rate and employment is almost certainly beyond the comprehension of the marginalistic supply-demand-equilibrium mindset. There is no need, though, to discuss much about contradicting assertions because eq. (22) is testable. Therefore, an experimentum crucis that settles the matter is possible in principle. There cannot be much doubt about the outcome.”

The outcome is what the most recent empirical studies show. These studies have not yet come to my notice, yet I am quite certain that you can improve the results by applying the structural axiomatic employment function. And, best of all, you get the underlying theory in one package with the correct profit formula.

I am looking forward to a perfect empirical corroboration of the structural axiomatic employment function.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics:
Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL