« Back to Results

Financial Fragility, Secular Stagnation, and Income Distribution

Paper Session

Sunday, Jan. 6, 2019 8:00 AM - 10:00 AM

Hyatt Regency Atlanta, Hanover A
  • Chair: Leila Davis, University of Massachusetts-Boston

Induced Shifting Involvements and Cycles of Growth and Distribution

Michalis Nikiforos
Levy Economic Institute


The paper builds on the concept of (Shifting) Involvements originally proposed by Albert
Hirschman (1982]). However, unlike Hirschman the concept is framed in class terms. A model is
presented where income distribution is determined by the involvement of the two classes. Higher
involvement by capitalists and lower by workers increase the profit share and vice versa. In turn,
shifts in involvements are induced by the potential effect of a change in distribution on economic
activity and past levels of distribution. On the other hand, as the profit share increases the
economy tends to become more wage-led. The dynamics of the resulting model are interesting.
The more the two classes prioritize the increase of their income share over economic activity, the
more possible is that the economy is unstable. Under the stable configuration, the most possible
outcome are predator prey cycles in the space. This kind of
dynamics can explain some interesting historical episodes during the 20th century. Finally, the
paper discusses the possibility of conflict and cooperation within each of the distribution-led

The Functions and Distribution of Household Debt – A Study on United States Data

Orsola Costantini
Institute for New Economic Thinking
Carlo D'Ippoliti
Sapienza University of Rome


From the 1980s to the 2008 crisis, household debt in the US has been persistent and
rising phenomenon. Less than a decade after the crash, it resumed to positive growth rates. Yet,
behind this persistence, we observe that the composition of debt as well as the share of debtors
have changed over time significantly. This paper looks at household credit as a structural feature
of the US economy. Given the assumption about this deeply financialized context, it observes the
co-distribution of different types of debt, income and wealth, in order to explore whether
household finances could be a useful indicator for the definition of social classes. We define and
explore the different degrees of fragility and riskiness to which households are exposed while
recognizing that household debt “historical” sustainability depends crucially on the type and
amount of outstanding debt as well as on its class distribution and on the macroeconomic
conditions, including public policies.

Income Shares, Secular Stagnation, and the Long-run Distribution of Wealth

Daniele Tavani
Colorado State University
Luke Petach
Colorado State University


Four alarming stylized facts have recently emerged in the United States: (i) a fall in the labor share of income; (ii) a fall in labor productivity; (iii) an increase in the capital-income ratio, and (iv) an increase in the wealth share owned by top income earners. In this paper, we offer an explanation for these facts that is diametrically opposed to the account provided in Piketty (2014), by drawing from the Pasinetti (1962) approach to differential saving propensities among classes as well as the theory of induced technical change (ITC) by Kennedy (1964). In a simple model with two types of households—high income and low income—and endogenous saving rates, we show that institutional changes such that lower the labor share—declining unionization, increasing monopsony power in the labor market, the so-called ‘race to the bottom’ in a hyper-competitive global environment, or the exhaustion of path-breaking scientific discoveries as argued by Gordon (2015)—can lower labor productivity growth because of the reduced incentives to innovate to save on labor costs. Combined with ITC, differential saving implies a direct relationship between the capitalist share of wealth and the capital-income ratio independent of the elasticity of substitution in production. These tendencies are not inevitable: taxation can be used to implement any wealth distribution; while worker-crushing institutional arrangements can be reversed through policy. However, neither change appears likely given the current institutional and global climate.

The Evolution of Financial Fragility: A Quantile Decomposition of Firm Balance Sheets

Leila Davis
University of Massachusetts-Boston
Joao Paulo de Souza
Middlebury College
Gonzalo Hernandez Jimenez
Pontifical Xavierian University


The post-1980 period has seen sustained changes in the balance sheet structure of the
average non-financial corporation in the U.S., but also important heterogeneity across firms. In particular, firms across the distribution have seen an increase in cash holdings and, while average indebtedness has remained stable, firms at the bottom 60% of the distribution have become less indebted. At first sight, these trends are puzzling, given that the post-1980 period has also seen a growing share of firms unable to generate sufficient cash flows to service their financial obligations (such that they are net borrowers). In this paper, we reconcile these trends by decomposing observed trends in firm balance sheets into two components: the contribution of within-firm changes in financial behavior, and the contribution of changes in the composition of firms in the corporate sector. Using a two-step quantile decomposition method, we find that the observed changes in balance sheets are driven by firms entering and exiting the corporate sector, rather than by the behavior of continuing firms. Furthermore, these compositional effects are particularly strong among more financially fragile firms. Our findings suggest that 'churning' and, in particular, changing IPO behavior, are key mechanisms through which changing financial norms have been realized after 1980 in the U.S. corporate sector.
JEL Classifications
  • E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
  • D3 - Distribution