The dynamics of the labour market and income distribution in relation to the speed of demand saturation

The purpose of this paper is to provide a coherent framework to explain the unusual phenomena of employment, real wage, and profit share observed in industrialised economies since the 1980s, in relation to the speed of demand saturation. To this end, we use a multisectoral model including capital goods and the stochastic emergence of new products. We show that faster demand saturation tends to accelerate the growth of employment but decelerate the growth of the real wage. Furthermore, we show that faster demand saturation tends to increase the profit share and the share eventually converges irrespective of the difference in the speed of demand saturation. Finally, it is argued that our model has a critical implication for the non-accelerating inflation rate of unemployment (NAIRU).

► The labour market and income distribution are coherently analysed in relation to the speed of demand saturation. ► We use a multisectoral model including capital goods and the stochastic emergence of new products. ► The faster demand saturation accelerates the increase in employment but decelerates the growth of real wage. ► The faster demand saturation increases the profit share. ► Our model has a critical implication for the concept of the NAIRU.