Income Distribution, Macroeconomic Analysis and Barriers to Full Employment

Discussion of the distribution of income is noticeable by its absence from most mainstream macroeconomic analysis, though it does, of course, make an appearance in post Keynesian economics, particularly as derived from the work of Kalecki. This lack of attention to the distribution of income could to some degree be explained by the focus of macroeconomics on aggregates, combined with the belief that the disaggregation of income into, for example, wages and profits was uninteresting. This argument was never a strong one and, since macroeconomic analysis following Keynes, emphasized the role of investment as a component of aggregate demand, and two key attributes of investment expenditure can readily be seen to be the role of profits (as a source of finance and as an indicator of future profitability) and its links between the present and an uncertain future. The trend over the past 15 or so years to explore the microeconomic foundations of macroeconomics, and the general reduction of macroeconomics to a summation of microeconomics have severely weakened the argument but has not lead to any significant rise in interest in distribution of income. In this paper, we are concerned with three sets of arguments concerning the relationship between macroeconomics and the distribution of income. In the first main section we argue that in so far as the NAIRU (non accelerating inflation rate of unemployment) is seen as a barrier to the achievement of full employment, it should be viewed as one arising from conflicts over the distribution of income. In the second main section, we discuss the question of the relationship between the distribution of income and the level of aggregate demand. Specifically, we briefly examine how changes in the distribution of income have impacted on the levels of economic activity and of unemployment over the past 15 years or so. In the third section we offer some remarks on monetary policy and the distribution of income