(A volume in the series: Advances in Labour Studies)
: Marc Lavoie and Engelbert Stockhammer
: Palgrave Macmillan – 193 pages
Book Review by
: Sonu Chandiram

Does the rise in wages lead to more demand for goods and services which in turn leads to larger production of those goods and services, creating a rise in gross domestic product or GDP? In other words, is economic growth principally driven by creating larger demand, or is it driven by enlarging the supply of such goods and services?

Of course, supply and demand co-exist in any given economy, but the question to answer is: which one – supply or demand – exerts a larger influence in increasing GDP, the principal goal of all countries? Should we focus on increasing the supply of goods and services? Or should we focus on increasing demand?

There are those who contend that economic actions should be taken principally to drive GDP growth to higher levels. This faction contends that constantly raising the production levels of goods and services is the key to economic growth, and let the market decide how much of the new value created in a given economy through higher GDP goes to each of its two principal sectors – capital and labor.

The editors of this book, as well as other writers of its six chapters think that higher wages lead to greater demand and higher GDP. They offer data obtained from various research studies, to support their view. They feel strongly that more equitable distribution of value created is very important to continuing growth. This means that the gap in income between those at the higher rungs of the economic ladder, and the lower rungs, needs to be narrowed. They even go on to say that income inequality is one of the causes of the Great Recession much of the world is in today.

Why was this book written? You get the answer in its Preface: “The main goal of this book is to go beyond the macroeconomic view of wages as a cost having negative consequences on the economy and to consider the positive macroeconomic dynamics associated with wages as a major component of aggregate demand. Wage growth can generate demand growth and productivity growth. Insufficient wage growth, or more broadly, the polarization of income distribution, have contributed to the economic crisis.” (referring to the global financial crisis that began in 2008 or the current one that probably still exists, particularly in Europe).

This book is essentially the product of a joint International Labour Organization research project on wage-led economic growth, and is divided into six aspects. Those themes are covered in each of the six chapters we present below, to provide readers an overview of the contents of this book:

  1. Introduction
  2. Wage-Led Growth: Concept, Theories and Policies
  3. Why Have Wage Shares Fallen? An Analysis of the Determinants of Functional Income Distribution
  4. Is Aggregate Demand Wage-Led or Profit-Led? A Global Model
  5. Wage-Led or Profit-Led Supply: Wages, Productivity and Investment
  6. The Role of Income Inequality as a Cause of the Great Recession and Global Imbalances
  7. Financialization, the Financial and Economic Crisis, and the Requirements and Potentials of Wage-Led Recovery

This is an insightful book. Particularly useful are variations in economic growth levels, shares of wages, and other factors found in the data tables on different countries.


Marc Lavoie
Engelbert Stockhammer



Giorgos Galanis, a doctoral candidate in Economics at the University of Warwick, is a Research Economist at the New Economics Foundation. He already holds a PhD in Mathematical Methods and Systems from City University, London, where he is a Visiting Research Fellow. He is on the editorial board of Historical Materialism: Research in Critical Marxist Theory.   

Eckhard Hein is Professor of Economics at Berlin School of Economics and Law. He is a member of the Coordinating Committee of the Research Network Macroeconomics and Macroeconomic Policies (FMM) and a managing co-editor European Journal of Economics and Economic Policies: Intervention (EJEEP). 

Marc Lavoie is Professor in the Department of Economics at the University of Ottawa and an IMK Research Fellow. He’s a managing co-editor European Journal of Economics and Economic Policy: Intervention. He is the author of Foundations of Post-Keynesian Economic Analysis (1992), other books. He is an editor of Alfred Eichner and Post-Keynesian Economics. 

Matthias Mundt obtained an MA in International Economics from the Berlin School of Economics and Law in 2013. He completed several internships: at the Institute for Ecological Economy Research, the Confederation of German Trade Unions and the Federal Ministry of Economics and Technology. He has published research on Cape Verde and European fisheries.

C.W.M. (Ro) Naastepad is an Assistant Professor at Delft University of Technology, the Netherlands. She has worked on real-financial computable general equilibrium (CGE) models in the past. Her work on economic policies conducive to technological progress was published in Cambridge Journal of Economics and in her book Macroeconomics Beyond NAIRU (2012).

Ozlem Onaran is Professor of Workforce and Economic Development Policy at the University of Greenwich. She is a member of the Coordinating Committee of the Research Network Macro-economics and Macroeconomic Policies, research associate at Political Economy Research Institute at University of Massachusetts, Amherst, and a fellow of the Global Labour University.

Engelbert Stockhammer is Professor of Economics at Kingston University. His research areas include macroeconomics and financial systems. He is a research associate at Political Economy Institute at the University of Massachusetts at Amherst, and a member of the Coordinating Committee of the Research Network Macroeconomics and Macroeconomic Policies.

Servaas Storm is Assistant Professor at Delft Institute of Technology, Netherlands. He works on macroeconomics, financial institutions, economic development, and climate change. He has published papers in the Cambridge Journal of Economics, Industrial Relations, and others. His most recent book (coauthored with C.W.M. Naastepad) is Macroeconomics Beyond the NAIRU.

Simon Sturn is a graduate student at the University of Massachusetts at Amherst. From 2008 to 2011 he worked at the Macroeconomics Policy Institute (IMK) in Dusseldorf. He studied economics in Vienna. He has published in Applied Economics and the International Labour Review.

Till van Treeck is a Senior Economist at Macroeconomics Policy Institute (IMK), and a visiting professor at the University of Duisburg-Essen. He is a member of the organizing committee of the Research Network Macroeconomics and Macroeconomic Policies, and a managing co-editor of the European Journal of Economics and Economic Policies: Intervention (EJEEP)

Advances in Labour Series is a wide-ranging series of research titles from the International Labour Organization (ILO), offering in-depth analysis of labour issues from a global perspective. The series has in interdisciplinary flavour that reflects the unique nature of labour studies, where economics, labour relations, law, and social policy combine. Bringing together work from researchers from around the world, the work contributes new and challenging research and ideas that aim both to stimulate debate and inform policy.