Conflict inflation and autonomous demand: a super multiplier model with endogenous distribution

You are invited to a Zoom Seminar by Riccardo Pariboni from the University of Siena, co-authored by Guilherme Morlin from the University of Pisa.

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The disciplinary role of unemployment has long been acknowledged in economic theory. Unemployment discourages wage claims, thereby being associated with lower increases in the wage share. Accordingly, seminal works on conflict inflation included the unemployment rate as a determinant of workers’ bargaining power, affecting thus distribution and inflation (Rowthorn, 1977).

More recently, however, conflict inflation models have shifted away from this analytical approach and replaced the unemployment rate with the rate of change in unemployment as a determinant of workers’ claims (Cassetti, 2002; Lavoie, 2014). A similar approach is found in Nah and Lavoie (2019), who introduced conflict inflation in an autonomous demand-led growth model in which the unemployment rate - contrarily to empirical evidence - has no permanent effect on wage claims and income distribution We propose here an alternative approach to com[1]bine conflict inflation and autonomous demand-led growth in a Sraffian super multiplier model.

We introduce the unemployment rate as a determinant of workers’ claim in a conflicting claims model. We model the labour market following Fazzari, Ferri, and Variato (2020): the unemployment rate changes according to the difference between the growth of labor demand, led by autonomous demand, and the growth of the labour force, which follows an exogenous demographic trend plus an endogenous adjustment to labour market conditions. The second effect relies on the impact of lower unemployment on labour participation, by encouraging labour force participation and migration movements (Fazzari et al., 2020). A lower unemployment rate increases both the equilibrium wage share and conflict inflation. In contrast, lower employment implies a decrease in both the equilibrium wage share and inflation. By endogenizing income distribution through a conflicting claims process, we find a direct relation between the growth rate of autonomous demand and the wage share. This relation discloses a conflict underlying the determinants of autonomous demand growth.

We conclude that the political economy of growth and distribution must pay attention to the effect of autonomous demand growth on workers' bargaining power and income distribution.

All are welcome to attend!