An Approach to the Theory of Income Distribution

An Approach to the Theory of Income Distribution

An Approach to the Theory of Income Distribution

An Approach to the Theory of Income Distribution

Synopsis

An economic study of income distribution and employment.

Excerpt

This chapter and the following one are devoted to the theory of relative shares, sketching its outlines by aid of the theory of activity just developed. The suppositions of a fixed stock of equipment, a constant price for variable factors, given productivity functions, a homogeneous labor force, fully integrated firms, and the absence of monopoly, will be retained for the time being, though several of the hypotheses will be dropped in the next chapter. The immediate emphasis will be on the effect of productivity phenomena in determining the relative wage share under conditions of pure competition. We begin, first, with a macroscopic view of the theory.

A MACROSCOPIC VIEW OF RELATIVE SHARES

Formally, the change in income shares and relative earnings as activity varies can be detected on an over-all view by observing the respective shapes and proximity of the Z-, FF'-, and W-curves. So long as the Z-function advances more steeply than W, the income shift is away from wage incomes and toward profits; relative shares would be maintained only if there were an equivalent rise in both curves. With a constant money wage, this can occur only if the Z-curve is linear, denoting a constant marginal product of labor under pure competition and E = 1.

THE FIXED SHARE . Fixed-income recipients inevitably are affected adversely by an income advance; not only will the relative position of rentier groups suffer by an income upswing, but also they are the only group whose absolute-income parcel fails to be enlarged. Benefit from the real-income employment growth is denied them unless the advance occurs to the tune of falling prices, though, with wage rates constant and the marginal productivity of labor . . .

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