Demand regimes and the business-cycle: Feedback effects between capacity utilization and income distribution taking into account overhead labor - SVAR-estimates for Germany (2007 - 2021)

In this paper, Structural Vector Autoregressive (SVAR) models of quarterly data between 2007 and 2021 are estimated to assess short-term regimes of aggregate demand and distribution in Germany. The obtained Impulse Response Functions (IRFs) of the conventional neo-Goodwinian baseline case, with an aggregate wage-share, are compared to an alternative model, disaggregating the wage-share. The robustness of the results is tested by imposing an alternative post-Kaleckian ordering of (contemporaneous) causation. For the neo-Goodwinian baseline model, a profit-led demand schedule and a pro-cyclical wage-share are found. Disaggregation reveals, however, that the pro-cyclical wage-share is mainly driven by supervisory wages, while positive shocks in the direct wage-share had a stronger (negative) impact on aggregate demand, than the supervisory wage share. Imposing post-Kaleckian restrictions of causation yields a consistent (although weaker) estimate of the demand-regime but reversed distributive regimes: The aggregated wage-share behaves counter-cyclical, with the supervisory wage-share reacting stronger (negative) than the direct wage share, when subject to a positive shock in capacity utilization.