The Dynamics of the Profit Rate in an Extended Okishio Framework

Building on the classical Okishio theorem, we construct a two-sector, multi-period dynamic model that relaxes the rigid assumption of a fixed real wage and introduces an endogenous wage-growth mechanism together with a process of technology diffusion. Through analytical derivations and numerical simulations we find that the long-run trajectory of the profit rate is not unique: it hinges on the relative strength of the speed of wage adjustment and the potency of technical progress. (1) When wage adjustment is relatively sluggish, the technical effect dominates and the profit rate trends upward. (2) When wage adjustment proceeds at a moderate pace, the profit rate first rises and then falls. (3) When wage adjustment is extremely rapid, the wage effect dominates and the profit rate declines continuously. The results offer a new theoretical lens on the intricate interplay among technical change, wage dynamics and profitability.