Globalization and the effects of changes in functional income distribution on aggregate demand in Germany

Germany has experienced a period of extreme nominal and real wage moderation since the mid‐1990s. Contrary to the expectations of liberal economists, this has failed to improve Germany’s mediocre economic performance. However, Germany is now running substantial current account surpluses. One possible explanation for Germany’s disappointing performance is found in Kaleckian theory, which highlights that the domestic demand effect of a decline in the wage share will typically be contractionary, whereas net exports will increase (Blecker 1989). The size of the foreign demand effect will critically depend on the degree of openness of the economy. This paper aims at estimating empirically the demand side of a Bhaduri and Marglin (1990) type model for Germany. The paper builds on the estimation strategy of Stockhammer, Onaran, and Ederer (2009) and Hein and Vogel (2008, 2009). The main contribution lies in a careful analysis of the effects of globalization. Since Germany is a large open economy by now it is a particularly interesting case study.

[1]  Jin-Ho Jeong,et al.  Tax and Spend, or Spend and Tax? , 1986 .

[2]  R. Böheim,et al.  Dependent Forms of Self-Employment in the UK: Identifying Workers on the Border between Employment and Self-Employment , 2006, SSRN Electronic Journal.

[3]  Thomas Grandner.  A Note on Unionized Firms' Incentive to Integrate Vertically , 2000 .

[4]  Ozlem Onaran.  Jobless Growth in the Central and East European Countries: A Country-Specific Panel Data Analysis of the Manufacturing Industry , 2008 .

[5]  Hansjoerg Klausinger.  Oskar Morgenstern als wirtschaftspolitischer Berater in den 1930er-Jahren , 2006 .

[6]  Engelbert J. Dockner,et al.  A Dynamic Theory of Conjectural Variations , 1992 .

[7]  Hansjörg Klausinger.  Walras' Law in stochastic macro models. The example of the optimal monetary instrument. , 2002 .

[8]  Engelbert Stockhammer,et al.  Uncertainty and Exploitation in History , 2008 .

[9]  Eckhard Hein,et al.  Distribution and growth reconsidered: empirical results for six OECD countries , 2007 .

[10]  I. Kubin,et al.  Fixed price dynamics versus flexible price dynamics , 2005 .

[11]  Eva Pichler.  Union Wage Bargaining and Status , 1992 .

[12]  Bob Chirinko,et al.  Business Fixed Investment Spending: Modeling Strategies, Empirical Results, and Policy Implications , 1993 .

[13]  Andreas Reinstaller,et al.  The effects of gallery and artist reputation on prices in the primary market for art: a note , 2007 .

[14]  Steven M. Fazzari,et al.  The Investment Theories of Kalecki and Keynes: An Empirical Study of Firm Data, 1970–1982 , 1986 .

[15]  G. Wehinger.  Are Exchange Rate-Based Stabilizations Expansionary: Theoretical Considerations and the Brazilian Case , 1997 .

[16]  Eva Pichler.  Cost-sharing of general and specific training with depreciation of human capital , 1993 .

[17]  C. Bellak.  How Domestic and Foreign Firms Differ and Why Does it Matter? , 2004 .

[18]  Engelbert Stockhammer.  Is the Nairu Theory a Monetarist, New Keynesian, Post Keynesian or a Marxist Theory? , 2008 .

[19]  Deirdre N. McCloskey,et al.  The Standard Error of Regressions , 1996 .

[20]  Dieter Gstach,et al.  Comparing structural efficiency of unbalanced subsamples: A resampling adaptation of data envelopment analysis , 1995 .

[21]  Engelbert Stockhammer,et al.  Accumulation, distribution and employment: a structural VAR approach to a Kaleckian macro model. , 2004 .

[22]  B. Mahlberg,et al.  Effects of the single market on the Austrian insurance industry , 2003 .

[23]  Özlem Onaran.  Speculation-led growth and fragility in Turkey: Does EU make a difference or "can it happen again"? , 2006 .

[24]  Martin Zagler,et al.  Institutional and Organizational Determinants of Product Innovations , 2003 .

[25]  C. Helmenstein,et al.  Neural networks in the capital markets: An application to index forecasting , 1996 .

[26]  Thomas Grandner,et al.  A Note on Product Differentiation in a Linear City and Wage Bargaining , 2007 .

[27]  Achim Truger,et al.  Deflation Risks in Germany and the EMU: The Role of Wages and Wage Bargaining , 2006 .

[28]  Engelbert Stockhammer,et al.  National and sectoral factors in wage formation in Central and Eastern Europe 1 , 2006 .

[29]  Engelbert Stockhammer.  Explaining European Unemployment: Testing the NAIRU Hypothesis and a Keynesian Approach , 2004 .

[30]  Engelbert Stockhammer,et al.  Two Different Export-Oriented Growth Strategies: Accumulation and Distribution in Turkey and South Korea , 2005 .

[31]  Amit Bhaduri,et al.  Unemployment and the real wage: the economic basis for contesting political ideologies , 1990 .

[32]  Chapter 3 OECD Workers in the Global Economy : Increasingly Vulnerable ? , 2007 .

[33]  Leopold Sögner.  Regulation of a complementary imputed good in an competitive environment , 1998 .

[34]  Engelbert Stockhammer,et al.  Demand effects of the falling wage share in Austria , 2008 .

[35]  Thomas Steinberger,et al.  Growth Theories and the Persistence of Output Fluctuations: The Case of Austria , 1998 .

[36]  Dieter Gstach,et al.  Scale Efficiency: Where Data Envelopment Analysis Outperforms Stochastic Production Function Estimation , 1993 .

[37]  W. Altzinger.  Austria's foreign direct investment in Central and Eastern Europe. "supply based" or "market driven"? , 1998 .

[38]  G. Wehinger.  Exchange rate-based stabilization. Pleasant monetary dynamics? , 1997 .

[39]  Aleksandra Riedl,et al.  Testing the Tax Competition Theory: How Elastic are National Tax Bases in Western Europe? , 2007 .

[40]  Servaas Storm,et al.  OECD demand regimes (1960-2000) , 2006 .

[41]  Robert A. Blecker.  International competition, income distribution and economic growth , 1989 .

[42]  A. Hammerschmidt.  A strategic investment game with endogenous absorptive capacity , 2006 .

[43]  Martin Zagler.  Endogenous growth, efficiency wages and persistent unemployment , 1999 .

[44]  Hansjörg Klausinger.  Pigou's Macroeconomics of Unemployment (1933): A Simple Model , 1995 .

[45]  Harald Badinger,et al.  Vom kurzfristigen zum mittelfristigen Gleichgewicht in einer offenen Volkswirtschaft unter fixen und flexiblen Wechselkursen , 2007 .

[46]  Felicitas Scharmer.  The Validity Issue in Applied General Equilibrium Tax Models , 1993 .

[47]  Alfred Stiassny,et al.  The Temporal Causality between Government Taxes and Spending , 1992 .

[48]  Dieter Gstach,et al.  Small sample performance of two approaches to technical efficiency estimation in noisy multiple output environments , 1998 .

[49]  A. Heise,et al.  Wages, Employment, Distribution and Growth , 2006 .

[50]  Harald Katzmair.  Der Modellbegriff in den Sozialwissenschaften. Zum Programm einer kritischen Sozio-Logik , 1999 .

[51]  R. Ford,et al.  BUSINESS INVESTMENT : RECENT PERFORMANCE AND SOME IMPLICATIONS FOR POLICY , 2005 .

[52]  Hansjoerg Klausinger.  Die Alternativen zur Deflationspolitik Brünings im Lichte zeitgenössischer Kritik , 1997 .

[53]  Silvia Rocha-Akis.  Labour Tax Policies and Strategic Offshoring under Unionised Oligopoly , 2006 .

[54]  J. Schor,et al.  The golden age of capitalism : reinterpreting the postwar experience , 1991 .

[55]  Engelbert Stockhammer,et al.  Macroeconomic Policy Mix, Employment and Inflation in a Post-Keynesian Alternative to the New Consensus Model , 2010 .

[56]  Achim Truger,et al.  Germany's post-2000 stagnation in the European context - a lesson in macroeconomic mismanagement , 2006 .

[57]  E. Nowotny.  The Austrian Social Partnership and Democracy , 1993 .

[58]  Alfred Stiassny.  A Note on Frequency Domain Properties of Estimated VARs , 1994 .

[59]  Engelbert Stockhammer,et al.  The effect of FDI and foreign trade on wages in the Central and Eastern European Countries in the post-transition era: A sectoral analysis for the manufacturing industry , 2006, Structural Change and Economic Dynamics.

[60]  Robert A. Blecker.  Distribution, Demand and Growth in Neo-Kaleckian Macro-Models , 2002 .

[61]  Markus Marterbauer.  Die Rolle der Fiskalpolitik im schwedischen Wohlfahrtsstaat , 1991 .

[62]  C. Bellak.  The Investment Development Path of Austria , 2000 .

[63]  Achim Truger,et al.  Darmstadt Discussion Papers in Economics What ever happened to Germany ? Is the decline of the former European key currency country caused by structural sclerosis or by macroeconomic mismanagement ? , 2004 .

[64]  Leopold Sögner,et al.  Asset Pricing Under Asymmetric Information , 1999 .

[65]  C. Bellak.  Department of Economics Working Paper Series the Impact of Enlargement on the Race for Fdi , 2022 .

[66]  Thomas Grandner.  Is wage-leadership an instrument to coordinate unions' wage-policy? The case of imperfect product markets. , 2000 .

[67]  S. A. Marglin,et al.  Profit Squeeze and Keynesian Theory , 1991 .

[68]  Engelbert Stockhammer,et al.  Coming and leaving. Internal mobility in late Imperial Austria , 2007 .

[69]  Thomas Grandner.  Market shares of price setting firms and trade unions , 1998 .

[70]  Dieter Gstach.  Technical Efficiency in Noisy Multi-Output Settings , 1998 .

[71]  Achim Truger,et al.  How to Fight (or Not to Fight) a Slowdown , 2009 .

[72]  G. Pugh.  The profit elasticity of investment in West Germany and the investment diversion effects of unification , 1998 .

[73]  Stephen Bond,et al.  Financial Factors and Investment in Belgium, France, Germany, and the United Kingdom: A Comparison Using Company Panel Data , 2003, Review of Economics and Statistics.

[74]  Dieter Gstach,et al.  A statistical framework for estimating output-specific efficiencies , 2003 .

[75]  R. Ford,et al.  Business Investment in the OECD Economies: Recent Performance and some Implications for Policy , 1990 .

[76]  Engelbert Stockhammer,et al.  Functional income distribution and aggregate demand in the Euro area , 2008 .

[77]  J. Stiglitz,et al.  Credit Rationing in Markets with Imperfect Information , 1981 .

[78]  Christian Ragacs.  Minimum Wages in Austria: Estimation of Employment Functions , 1993 .

[79]  Toni M. Whited,et al.  Internal Finance and Firm Investment , 1993 .

[80]  A. Stiassny.  TVP - Ein Programm zur Schätzung von Modellen mit zeitvariierenden Parametern , 1993 .

[81]  Özlem Onaran,et al.  The controversy over employment policy: Low labor costs and openness, or demand policy? A sectoral analysis for Turkey , 2006 .

[82]  Martin Zagler,et al.  Economic Policy in a Model of Endogenous Growth , 1997 .

[83]  Dieter Gstach.  A new approach to stochastic frontier estimation: DEA+ , 1996 .

[84]  J. Hatzius.  Foreign direct investment and factor demand elasticities , 2000 .

[85]  Dieter Gstach,et al.  Output specific efficiencies: The case of UK private secondary schools , 2003 .

[86]  M. Kocher,et al.  Measuring productivity of research in economics: A cross-country study using DEA , 2006 .

[87]  Stephen T. Ziliak,et al.  Size Matters: The Standard Error of Regressions in the American Economic Review , 2004 .

[88]  F. Rumler.  Computable general equilibrium modeling. Numerical simulations in a 2-country monetary general equilibrium model. , 1999 .

[89]  A. Burger.  Reasons for the U.S. growth period in the nineties: non-keynesian effects, asset wealth and productivity , 2006 .

[90]  J. Chipman,et al.  The Theory of Economic Dynamics , 1956 .

[91]  P. Commendatore,et al.  The dynamics of wages and employment in a model of monopolistic competition and efficient bargaining , 2003 .

[92]  Eckhard Hein,et al.  Distribution and Growth in France and Germany: Single Equation Estimations and Model Simulations Based on the Bhaduri/Marglin Model , 2009 .

[93]  Thomas Grandner.  Territoriale Evolution von Kooperation in einem Gefangenendilemma , 1996 .

[94]  Wilfried Altzinger.  Beschäftigungseffekte des österreichischen Osthandels , 1996 .

[95]  C. Bellak.  Towards A Flexible Concept of Competitiveness , 1992 .

[96]  P. Lewis,et al.  Macroeconomics - 4th Edition - , 2013 .

[97]  J. Cantwell,et al.  Measuring the Importance of International Production: The Re-estimation of Foreign Direct Investment at Current Values , 1995 .

[98]  Pasquale Commendatore,et al.  Footloose Capital and Productive Public Services , 2007 .

[99]  Maria Stückler.  Überprüfung von Gültigkeit und Annahmen der Friedman-These für Rohstoffmärkte , 2002 .