Workshop on Growth and Distribution

Organized jointly by the Center for Economics and Econometrics at Bogazici University and the Greenwich Political Economy Centre at the University of Greenwich

Funded jointly by the British Academy and Bogazici University

Venue: Ibrahim Bodur Auditorium

Date: Friday, September 23rd, 2016

10.15 – 10:30      Opening Ceremony                  

10:30 – 12:00      Growth and Distribution in Turkey

  • Household Debt in Turkey: The Critical Threshold for the Next Crisis

Alper Duman, Izmir University of Economics

  • Political Impact of Distributional Changes in Turkey, 2003-2014

Korkut Boratav, Ankara University(Professor Emeritus)

12:00 – 13:00      Lunch Break

13:00 – 15:00      Empirical Findings on the Link Between Growth and


  • The Profit-Investment Puzzle: Some Observations and Questions

Ozgur Orhangazi, Kadir Has University, J. W. Mason, John Jay College

  • Wage-Led vs. Profit-Led Growth: A Comprehensive Empirical Analysis.

Cem Oyvat, University of Greenwich, Ceyhun Elgin, Bo─čaziçi University & Oguz Oztunali, Bogazici University

  • Wage-led growth in the EU15 Member States:

The effects of income distribution on growth, investment, trade balance, and inflation

Ozlem Onaran, University of Greenwich, Thomas Obst, University of Greenwich

15:00 – 15:30    Coffee Break

15:30 - 17:30     A Discussion on Heterodox Growth Models

  • Wages as Income but also as a Cost of Production: An Amended Neo-Kaleckian Short-Run Model 

Olivier Allain, Université Paris Descartes, Sorbonne Paris Cité,

& Centre d’Economie de la Sorbonne

  • Wage-led versus Profit-led Demand: What Have we Learned?  A Kalecki-Minsky View

Engelbert Stockhammer, Kingston University

  • Weaknesses of ‘wage-led growth’

Peter Skott, 

University of Massachusetts, Amherst


Political Impact of Distributional Changes in Turkey, 2003-2014

Korkut Boratav

Professor Emeritus, Ankara University

Under AKP governments during 2003-2014, primary indicators of distribution changed against the working class and, vis a vis the peasants/farmers,  remained at their depressed  relative position of the preceding five years. Despite this, electoral support extended to AKP from these (popular) classes continued more or less unabated.  Economic factors to explain this dichotomy  will be discussed. Secondary relations of distribution, and redistributive policies compensated, in part, the relative regression of popular classes. Their impact on macro-economic ratios is overviewed. Hence, an investigation of AKP’s electoral performance should additionally and, perhaps more importantly, focus on historical, ideological, political factors.

Household Debt in Turkey: The Critical Threshold for the Next Crisis

Alper Duman

Izmir University of Economics

Turkey by and large avoided the financial meltdown of 2008-2009 thanks to its moderate level of household debt ratio and relatively sound public finance structure. The stylized fact is that the consumption loss as a percentage of GDP has been greater for the countries with higher growth rates of household debt-to-income ratios prior to the global crisis. Although Turkey also witnessed a surge in household debt levels, the starting point was so low that the general effect was not as destructive. We study two main factors that will make this dynamic more fragile and hence increase the likelihood of a financial crisis in the future: (1) Due to formalization of land and real estate markets, home ownership rates decline for the median group of households which constitute the backbone of the labor force and (2) The share of consumer credit in household budgets increase steadily for the lower and middle income groups. Both factors have the potential to induce dramatic rises in household debt-to-income ratios and create systemic financial risks. We use a simple Kaleckian model to study the relationship between these factors and the critical threshold of household debt-to-income ratio in Turkey.

The Profit-Investment Puzzle: Some Observations and Questions

J. W. Mason

John Jay College

Ozgur Orhangazi

 Kadir Has University

Historically there has been a high correlation between profits and investment for the US nonfinancial corporations. A whole series of heterodox  macroeconomic models placed the link between profits and investment at the center. However, starting in the second half of 1980s and especially after 2000, the correlation between profits and investment has become weaker. Moreover, the correlation between debt and investment has also become weaker. This weakening of the profit-investment link is sometimes referred to as the profit-investment puzzle. There are potentially two sets of explanations for the weakening correlation: Explanations focusing on nonfinancial channels and explanations focusing on financial channels. The former includes increased industrial concentration, globalization of production and relative productivity/price movements in investment and consumption goods producing sectors. The later includes the rising shareholder value and increasing financialization of nonfinancial corporations. In this paper, we discuss to what extent these alternative channels help us understand the weakening of the profit-investment link and asses their explanatory power using macro, sectoral and firm-level data. We discuss the explanatory power of heterodox macroeconomic models in the light of the empirical findings.

Wage-Led vs. Profit-Led Growth: A Comprehensive Empirical Analysis

Cem Oyvat

University of Greenwich

Ceyhun Elgin

Bogazici University

Oguz Oztunali

Bogazici University

The relationship between labour share and economic growth is a popular topic of research in economic policy. However, several country-based studies in the existing literature obtained contradictory findings. In this paper, we intend to make a comprehensive analysis and utilise a large panel data set of wages, profits and growth. We construct time-series data sets for a number of countries and then investigate on a country-by-country basis whether growth is wage-led or profit-led. Then in the next step of the analysis, using logistic regressions we will also look for various economic, social, cultural, institutional and political factors that makes a country wage-led or profit-led. The regressions control the average values of trade openness, GDP per capita, years of education, capital intensity, and time for the periods considered in the second phase. In our estimations, we find that the countries with greater trade openness are more likely to be profit-led. This is consistent with the theoretical frameworks of Blecker (1989) and Marglin and Bhaduri (1990) and empirical work of Onaran and Galanis (2012) which show open economies are more likely to be profit-led as a wage-led expansion might damage a country’s export competitiveness.


Wage-led growth in the EU15 Member States:  The effects of income distribution on growth, investment, trade balance, and inflation

Ozlem Onaran

University of Greenwich

Thomas Obst

University of Greenwich

This paper estimates a multi-country demand-led growth model for EU15 countries. A decrease in the share of wages in national income in isolation leads to lower growth in Finland, France, Germany, Greece, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden and the United Kingdom, whereas it stimulates growth in Austria, Belgium, Denmark and Ireland. However, a simultaneous decline in the wage share leads to an overall decline in EU15 GDP; hence EU15 as a whole is a wage-led economy. Furthermore, Austria and Ireland also experience negative effects on growth when they decrease their wage share along with their trading partners. The results indicate that a decline in the wage share has had significant negative effects on growth in the EU15 countries and supports the case of wage coordination. We present different wage-led recovery scenarios taking into account further effects of a change in the wage share on prices, nominal unit labour costs, investment, and net exports.

Wages as Income but also as a Cost of Production: An Amended Neo-Kaleckian Short-Run Model

Olivier Allain

Université Paris Descartes, Sorbonne Paris Cité,

& Centre d’Economie de la Sorbonne

While orthodox economists consider wages as costs but neglect their role as incomes, post-Keynesians consider wages as incomes but neglect their role as costs. Actually, high labor costs never directly deter firms from increasing their production, even in all the many models of income distribution in which the effect is indirect, going through the aggregate demand components. The aim of this article is to take into account both features of wages: as incomes, but also as costs. Accordingly, we explore the properties of a neo-Kaleckian model that includes two specific assumptions: the labor productivity differs from one firm to another, and production must be profitable. In such framework, the model remains stagnationist as long as the price level is higher than the macroeconomic break-even point. Under this point, however, the model becomes exhilarationist: a rise in the real wage fuels the aggregate demand, but firms decide to reduce output because of a cut in their profitability on the less efficient equipment.

Wage-led versus Profit-led Demand: What Have we Learned?  A Kalecki-Minsky View

Engelbert Stockhammer

Kingston University

The Bhaduri-Marglin model has become a widely used workhorse model in heterodox macroeconomics and it has given rise to a dozen or so empirical studies, which at times have given conflicting results. Neo-Kaleckians and neo-Goodwinians have applied different estimation strategies, with the former typically estimating behavioural equations, while the latter have often used reduced-form demand equations. Further differences include the lag structure, the output measure, the control variables and the sample. The paper, firstly, tries to clarify the terms of the debate. While neo-Kaleckians interpret the model as medium term, partial-equilibrium goods market model, neo-Goodwinians are interested in the interaction of demand and distribution and regard the model as a long-run model with short-run cycles. Second, we elaborate a Kalecki-Minsky view of the economy as characterised by a wage-led demand regime and cycles driven by financial fragility. Many of the reported results may suffer from omitted variable bias as they do not include financial control variables. At least in the recent past, financial effects on demand have been much larger in size than distribution effects. A wage-led Minsky model with reserve army distribution function gives rise to pseudo-Goodwin cycles.

Weaknesses of ‘wage-led growth’

Peter Skott

University of Massachusetts, Amherst

The emphasis in post-Keynesian macroeconomics on wage- versus profit-led growth may not have been helpful. The profit share is not an exogenous variable, and the correlations between the profit share and economic growth can be positive for some exogenous shocks but negative for others. The terminology, second, suggests a unidirectional causality from distribution to aggregate demand while in fact distribution can itself be directly affected by shifts in aggregate demand. The reduced form correlations, third, depend on interactions with the labor market, and a focus on the goods market can be misleading. If, fourth, empirical estimates are taken at face value, the support for wage-led conclusions is much weaker than suggested by the literature. A focus on the growth-benefits of a reduction in inequality, Finally, makes for an impoverished policy discussion.

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