Conflict inflation and autonomous demand: a supermultiplier model with endogenous distribution

The disciplinary role of unemployment has long been acknowledged in economic theory. Seminal works on conflict inflation have included the unemployment rate as a determinant of workers’ bargaining power, which thus affects distribution and inflation (Rowthorn, 1977). In extensions to the long run, however, conflict inflation models have shifted away from this analytical approach and replaced the unemployment rate with the rate of change in unemployment as a determinant of workers’ claim (Cassetti, 2002; Lavoie, 2022). A similar approach is found in Nah and Lavoie (2019), who introduced conflict inflation in an autonomous demand-led growth model in which the unemployment rate – contrarily to empirical evidence – has no permanent effect on wage claims and income distribution We propose here an alternative way to combine conflict inflation and autonomous demand-led growth in a Sraffian supermultiplier model. We introduce the unemployment rate as a determinant of workers’ claim in a conflicting claims model. Modeling of the labor market relies on an endogenous adjustment of labor supply to demand (Fazzari, Ferri, and Variato, 2020). We extend the typical results of short-run conflict inflation models to the long run, finding that high (low) unemployment rate reduces (increases) both the equilibrium wage share and conflict inflation. By incorporating income distribution as an endogenous factor through a conflicting claims process, we establish a direct relationship between the growth rate of autonomous demand and the wage share. This relation discloses a conflict underlying the determinants of autonomous demand growth. We conclude that in the political economy of growth and distribution it is crucial to consider the impact of autonomous demand growth on workers’ bargaining power and income distribution