Distribution and Capacity Utilization: Conceptual Issues and Empirical Evidence

This paper examines the relationship between the distribution of income and capacity utilization in the context of the Kaleckian model of growth and distribution. We provide an exposition of the underlying theory of wage‐ and profit‐led growth. We emphasize the implications of possible non‐linearities in the determination of the final equilibrium and why—because of them—a redefinition of the concept of wage‐ and profit‐led economy is necessary. We estimate the demand and distribution schedule for the US economy using a two‐stage least squares approach. Our findings confirm the hypothesis of a non‐linear distribution schedule and therefore the need to redefine the concepts wage‐ and profit‐led growth.