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Cambridge Journal of Economics Advance Access originally published online on August 8, 2005
Cambridge Journal of Economics 2006 30(3):403-434; doi:10.1093/cje/bei063
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© The Author 2005. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Article

Technology, demand and distribution: a cumulative growth model with an application to the Dutch productivity growth slowdown

C. W. M. Naastepad*

* Delft University of Technology

Address for correspondence: C. W. M. Naastepad, Department of Economics of Innovation, Faculty TBM, Delft University of Technology, Jaffalaan 5, NL-2628 BX Delft, The Netherlands; email: c.w.m.naastepad{at}tbm.tudelft.nl

Abstract

This paper argues that the case for real wage growth restraint, and the consequent restoration of profitability, which the mainstream consensus regards as a necessary condition for sustained output and productivity growth, is based on weak foundations, because it neglects the negative impact of wage moderation on productivity growth. Using a general Keynesian growth model, which integrates a (wage-led or profit-led) demand regime and a productivity regime (incorporating the productivity-growth enhancing effects of higher demand and higher real wages), the conditions are identified under which real wage restraint fails to raise output and productivity growth. The model is applied empirically to the Netherlands (1960–2000).

Key Words: Demand-led growth • Endogenous technological change • Wage-led and profit-led demand regimes • Productivity regime • Cumulative causation

JEL classifications: O4, O3, E3

Manuscript received March 31, 2004; final version received December 21, 2004.


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