Econintersect: It sounds like Karl Marx reborn. Research by Leon Pokammer at the Vienna Institute for International Studies has studied correlations between wages, profits and economic growth on a global scale. A paper just published in the real-world economics review discusses the correlations among falling wages, rising profits and slowing economic growth. Of course, this is different from the Marx labor theory of value in that the current study is not suggesting that all value derives from labor.
Click on picture to view original image at The Guardian.
Of course a problem with the suggestion is that correlation does not prove causation. Another paper in the same journal issue evaluates six econometric textbooks and find that all are lacking is some aspect of insufficiency in distinguishing between correlation and causation.
The conclusion of the Podkaminer paper appears to fall into the trap of assuming causation which is only evidenced by correlation:
One of the reasons why the global economy’s growth has been losing momentum (while at the same time becoming increasingly volatile, as shown in Figure 2) may have been the upset balance between the interests of labor and business – i.e. between wages and profits.
The return to faster, and less volatile, growth globally – and also at the national levels – may require pronounced changes not only as concerns the introduction of regulations restricting the financial sector’s disruptive practices. Also, something may have to be done – at national and international levels – to limit the downward drift in wage shares. The proven rule, once obeyed by economic policy making, that wages must move hand-in-hand with labor productivity needs to be resurrected.
One simple question: If there is cause and effect how does one distinguish the proposition made from the opposite causation, that slower growth causes declining labor share of income?
Ways that more light can be shown on the possibility of causal effects include:
- Clearly show the absence of effects on growth other than wages, profits and investment.
- Develop time functions for the variables so that timeline functions can be developed from the data.
- Develop analysis based on more complex algebraic functions, such as cross-terms (xy and xyz, for example), between the three variables to shed light on their interactions.
Sources:
- Global output growth: wage-led rather than profit-led? (Leon Podkaminer, real-world economics review, issue no. 65, September 2013)
- Regression and causation: a critical examination of six econometrics textbooks (Bryant Chen and Judea Pearl, real-world economic review, issue No. 65, September 2013)
- Labor theory of value (Wikipedia)
Karl Marx: a Nineteenth-Century Life by Jonathan Sperber – review (Tristam Hunt, The Guardian, 26 June 2013)
