Distribution and growth in demand and productivity in Switzerland (1950–2010)

Abstract

I investigate whether demand growth and productivity growth in Switzerland have benefitted from the wage moderation that set in at the beginning of the 1990s in this country. The results suggest that the Swiss demand regime is profit-led while the productivity regime is wage-led. This means on the one hand that wage moderation has added almost one Percentage Point to Gross Domestic Product (GDP) growth after 1990. On the other hand, it has also contributed to the drop in productivity growth. The latter effect, however, is weak.

Keywords:

• distribution
• demand growth
• productivity growth
• Bhaduri–Marglin model
• Switzerland

JEL Classification:

• E12
• E20
• O30
• O40

Acknowledgements

I would like to thank Theo Süllow for checking the maths and Boriss Siliverstovs for his suggestions on how to streamline the argument. All remaining errors are mine.

Notes

¹ Hein and Tarassow (2010) prefer the wage share instead of real wage growth as cost push variable. Also, they criticize that technical progress has no direct positive effect on investment in Equation 3(3). They capture this effect by including productivity growth in their capital accumulation equation.

² Durbin–Wu–Hausman tests do not reject the null hypothesis of exogeneity of the explanatory variables.

³ I exclude the Great Recession from this averaging because it entailed a collapse of world trade. Including it would arguably bias the average growth rate of world trade too much downward to be still representative for ‘normal’ post-1990 world trade growth. C is calibrated on up-to-date shares and includes an effect of redistribution on investment growth.