Abstract
A widely debated issue in heterodox economics is the question of whether macroeconomic activity reacts positively or negatively to increases in the wage share, i.e. whether it is wage-or profit-led. In the present paper, from an empirical perspective, we show that this question is of secondary importance for Marx's model of the distributive cycle. Our analysis starts with the traditional Goodwin (1967) model - which describes the dynamic interaction between the wage share and the employment rate - to which we add an effective demand function to cover the utilisation of the capital stock (thus a Keynes-component to the original supply-side dynamics). In this extended Goodwin model we show that the Goodwin story remains, qualitatively, akin to Marx's supply side model, although the distributive cycle will now also depend on the state of effective demand. Here we find that the question of whether the capacity utilisation of firms is driven by a profit-led or a wage-led goods-market regime is irrelevant if a mild elasticity condition in the case of a positive dependence of the capacity utilisation rate on the wage share is met. We illustrate this result from an empirical perspective.