Swayamsiddha Sarangi

Abstract

In this paper , I attempt to form a 2 dimensional model of wage share and
employment. However, unlike the classical Goodwinian model (which is based on the Lotka-Voltera system), where wage share and employment rate are variables for a specific economy, here I am considering the effect of changes in employment in the services sector on the wage share of manufacturing sector. The intuitive idea is that an increase in
the employment of labor in service sector weakens the labor share of the manufacturing sector workers. The underlying reason is the relative lower bargaining power of workers in service sectors (lower levels of unionization, tougher price competition and attempts to reduce costs through globalization could be some of the reasons behind this). This lower bargaining power reduces the manufacturing labor share (and might also reduce the aggregate labor share). I show that with given model specifications, there can be a stable low employment share, low labor share equilibrium. But as the feedback from
service sector employment to manufacturing sector wages becomes weaker, the fixed points become unstable and the relationship between these variables cannot be predicted.

Of course many simplistic assumptions are required to satisfy the conclusions of the model and the model generates a stable spiral for specific values of parameters and very close to the fixed point.

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