The distributive cycle: Evidence and current debates

This paper surveys current debates on the distributive cycle. The literature builds on Goodwin's seminal 1967 chapter titled “A growth cycle.” We review theoretical motivations for the distributive cycle, which, despite significant differences, all imply that macroeconomic activity leads the labor share in a counterclockwise cycle in the activity-labor share plane. Subsequently, we summarize and update evidence on the existence of a distributive cycle, with a focus on the post-war U.S. macroeconomy. We analyze activity and labor share series and their interaction in the frequency domain, and also employ standard vector autoregressions. Results confirm the distributive cycle for the U.S. post-war period. We contextualize results vis-à-vis current debates: (1) we consider a financial cycle, to rebut the theoretical possibility of “pseudo-Goodwin” cycles, (2) demonstrate that a suppressed labor share and stagnation are compatible with short-run Goodwin cycles, and argue that this link presents the way forward for research on secular stagnation.