Wages, Growth and the Distribution of Income

• Published in: Swedish Journal of Economics 1969-09, Vol.71 (3), p.133-160
• Main Authors: Edgren, Gösta, Faxén, Karl-Olof, Odhner, Clas-Erik
• Format: Article
• Language: English
• Subjects: Economic competition; Economic development; Economic policy; Economics; Financial investments; Income distribution; Labor markets; Price increases; Productivity; Wage increases
• ISSN: 0039-7318; 0347-0520
• DOI: 10.2307/3439366

In December 1968 an expert group composed of the research directors of the SAF, LO and TCO presented a report on Wage policy, the main content of which is presented in this article. The analysis builds on a division of the economy into two sectors, a competitive one (i.e. exposed to foreign competition) and a sheltered one with somewhat different causal relationships for price and profit developments. The movement of prices in the competitive sector is shown to have followed world market prices during the 1960's for exports as well as for import-competing domestic industries. Possibilities for wage increases and improvements in earning power are determined by the productivity developments in the sector and international price movements. The division of gains between wages and profits is a question for negotiation, on which the report does not take a position. Wage movements in the sheltered sector have been the same as in the competitive one, but productivity gains have been considerably lower. Since profitability has been constant in the sheltered sector, prices there have risen more strongly than in the competitive sector. Price developments have thus been determined by differentials in productivity gains and the uniformity of wage developments. This analysis, which links up with the Norwegian Aukrust-Committee's reports, is complemented by a discussion of the relationship between investment movements, profitability requirements-mainly within the competitive sector-and financing prospects for firms. Increased access to loan finance, e.g. through an expansion of the system of collective funds, can under certain assumptions reduce profitability requirements for a given investment development. The distribution of income between capital and labor is therefore not treated as a constant, but rather as a variable subject to influence by economic policy. New increments to equity capital by retaining earnings and from new additions from outside play a key role, whether they come from private savings or collective funds. Earning power in a long run growth process must be sufficiently high to attract so great additions to equity capital from these two sources, that the propensity for solvency of the firms at each level of profitability is met.