Factor shares, business cycles and the distributive loop

This paper looks at how factor shares vary over the business cycle and how their movements fit into Kaleckian analysis. Heterodox accounts of factor-share movements include both profit-squeeze arguments (procyclical wage share) and underconsumption arguments (counter-cyclical wage share). Empirical evidence gives no decisive support for either account: factor shares may be procyclical and counter-cyclical at different stages of the business cycle. If factor shares vary in such a complex way, then Kaleckian models cannot have a stable distributive curve. The economy instead follows a distributive loop, with different adjustment paths during an upswing and downswing.