The dynamics of profit and wages: technology, offshoring and demand

Journal for a Progressive Economy, October 2016

Over the last decades, economic inequalities have dramatically increased across both advanced and developing economies (Atkinson, 2015; Piketty, 2014). This evidence raises interest (again) in the dynamics of income distribution and its drivers (Franzini and Pianta, 2016). Looking back in time, classical economists such as Marx, Ricardo, or heterodox scholars such as Kalecki, regarded income distribution as the fundamental feature of capitalist economies, because distributive arrangements tend to reflect the interaction between the economy’s main driving forces. On the other hand, most of the explanations for the recent increase in inequality focus on what happened in the labour market, looking, in particular, at the role of trade and technology. The former is important because of globalization, which forces advanced economies to face competition from abundant unskilled labour countries and threatens workers with the risk of offshoring of their jobs. The latter matters because the nature of innovations may favour some skills over others, a phenomenon popularized as the Skill Bias Technical Change (SBTC hereafter).

Click here to download the article