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  3. 2022
  4. Preliminary Program
  5. Structural Change, Distribution, and Secular Stagnation
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Structural Change, Distribution, and Secular Stagnation

Paper Session

Friday, Jan. 7, 2022 3:45 PM - 5:45 PM (EST)

Hosted By: Union for Radical Political Economics
  • Chair: Laura Carvalho, University of São Paulo

Rethinking Pre-Pandemic Global Poverty against New Facts of Structural Change

Rishabh Kumar
,
University of Massachusetts-Boston

Abstract

Most experts on inequality agree that the poverty headcount began declining during the recent
period of globalization. This idea is based on estimates from a global dataset compiled by the
World Bank (PovCalNet), which itself is sourced from representative surveys in member
countries. In the process of compilation, several uniform assumptions are applied to standardize
consumption levels across the global population. We argue that the new facts of structural
change, particularly regarding premature deindustrialization, produce a bias at certain levels of
the global income distribution. This is especially salient for those countries whose labor force
has not followed the predicted ‘miracle’ path of development. Consumption per day for
precarious work may not hold for an entire year, which implies the effective consumption per day
may be lower. We revise cross-country consumption distributions and show that the poverty
decline may be exaggerated. Our research shifts the discussion on global poverty, from what
has essentially become disagreements on the appropriate poverty line, towards macro-growth.

Distributional Aspects of Rapid Structural Change: The Case of the Climate Change

Gregor Semieniuk
,
University of Massachusetts-Amherst

Abstract

Climate change will impose powerful structural change on human societies. If left unmitigated,
humans will have to adapt to altered weather, land and agricultural productivity patterns that in
turn will lead to large scale migration, reorganization of coastal communities and megacities and
the social and economic conflicts inhering in such stark changes. Effective mitigation requires
structural change in the more narrow, economic sense: that of the production system to a
low-carbon economy, much more rapidly than any known historical change at this scale. This
paper explores the multiple layers of distribution touched upon by such fast structural change:
interpersonal, inter-group, functional, international and interregional and their intersections.
Drawing on the theoretical and historical economic literature on structural change and inequality,
it analyzes how these various distributional aspects of rapid structural change in response to
climate change are activated and can interact, and how they are not usually thought together in
current economic analysis of climate change and its mitigation. The analysis highlights
opportunities for research and contributions from a political economy perspective to this topic.

Stylized Facts on the Evolution of Profit Rates in the U.S.: Evidence from Firm-Level Data

Leila Davis
,
University of Massachusetts-Boston

Abstract

This paper builds on the literature analyzing the behavior of the aggregate profit rate to describe
profitability across the distribution of firms in the post-1970 U.S. economy. While median
profitability largely mirrors well-established aggregate patterns, including a falling rate of profit
through the mid-1980s and a recovery thereafter, it masks a striking widening of the distribution
from the mid-1980s. At the bottom, profitability among the least profitable quintile of U.S.
nonfinancial corporations becomes systematically and increasingly negative after the early
1980s. We show that this decline reflects persistently negative average profitability in new
post-1970 cohorts, rather than falling profitability within continuing firms. At the top of the
distribution, the story is more complicated: while top-end operational profit rates (operational
returns on tangible capital) soar after 1980, this rise disappears when accounting for financial
and intangible assets (‘total’ profitability). We show that firms with high operational profit rates
hold large stocks of financial and intangible assets, relative to those with high total profitability,
but do not earn returns on these assets commensurate to those on physical capital. Thus, once
accounting for post-1980 changes in firms’ asset composition, growth in top-end profit rates
disappears.

Classical Political Economy and Secular Stagnation

Daniele Tavani
,
Colorado State University

Abstract

This paper presents a model of secular stagnation, income and wealth distribution, and employment
in the tradition of Classical Political Economy that can be contrasted with Thomas
Piketty’s account in Capital in the XXI Century and Robert Gordon’s view in The Rise and Fall of
American Growth. In both these explanations, an exogenous reduction in the growth rate g —be
that because of declining fertility or the exhaustion of path-breaking scientific discoveries—
increases the difference with the rate of return to capital r. The capital/income ratio rises, and if
the elasticity of substitution is higher than one, the wage share falls. Im- portantly, both Piketty
and Gordon think in terms of a labor force that is continuously fully employed. In our
explanation, which does not presuppose full employment, the key tension is between
profit-driven capital accumulation and wage-driven labor-augmenting technical change: both
these features are prevalent in Classical Political Economy, and have been emphasized in
recent heterodox macro literature. Institutional or technological shocks to income distribution that lower the wage share initially foster capital accumulation —which is profit-driven— and
increase wealth inequality, because the funds available for wealth accumu- lation by
profit-earning households have increased. However, the effect on long-run growth is negative,
because a reduction in the wage share lessens the incentives by firms to introduce labor-saving
innovation, which is wage-driven. The capital/income ratio must rise in order to restore balanced
growth and therefore stabilize the labor market in the long run; and the in- crease in wealth
inequality is permanent.
JEL Classifications
  • I1 - Health
  • D3 - Distribution