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Share of Labour Compensation and Aggregate Demand - Discussions Towards a Growth Strategy

Discussion paper by UNCTAD, 2011

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Economic growth strategies of developing countries have focused in the last decades on expanding their exports. In that scheme, wage compression seems necessary in order to compensate the observed slow productivity pace achieving, therefore, “competitiveness”. The core of this discussion is, undoubtedly, how the national product is appropriated through wages and surplus, i.e. the factorial income distribution. From that viewpoint, this paper discusses the long-term impoverishment of Argentinean workers through two key aspects of the economic process: on one hand, the way in which labour force is allocated, by analysing the relationship between real wage and productivity. On the other, how income is used in the acquisition of consumer goods and capital formation. In order to fully comprehend those trends, this paper recourses to an international comparison with two types of countries: the developed ones (United States of America, France and Japan) and the largest Latin American economies (Brazil and Mexico). As these processes take place in the long run, this paper’s analysis period will start from the 1950s.

No. 203


September 2011


SHARE OF LABOUR COMPENSATION


AND AGGREGATE DEMAND –


DISCUSSIONS TOWARDS A GROWTH STRATEGY






SHARE OF LABOUR COMPENSATION
AND AGGREGATE DEMAND –


DISCUSSIONS TOWARDS A GROWTH STRATEGY


Javier Lindenboim, Damián Kennedy and Juan M. Graña


No. 203
September 2011


Acknowledgement: We would like to thank Alfredo Calcagno, Agustín Arakaki, Pilar Piqué and Jimena
Valdez for their comments to prior draft versions of this document and Ezequiel Monteforte for his assistance
in data gathering.


UNCTAD/OSG/DP/2011/3




ii


The opinions expressed in this paper are those of the authors and are not to be taken as the official views
of the UNCTAD Secretariat or its Member States. The designations and terminology employed are also
those of the authors.


UNCTAD Discussion Papers are read anonymously by at least one referee, whose comments are taken
into account before publication.


Comments on this paper are invited and may be addressed to the authors, c/o the Publications Assistant,
Macroeconomic and Development Policies Branch (MDPB), Division on Globalization and Development
Strategies (DGDS), United Nations Conference on Trade and Development (UNCTAD), Palais des Nations,
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Copies of Discussion Papers may also be obtained from this address.


New Discussion Papers are available on the UNCTAD website at http://www.unctad.org.


JEL classification: 011, 057, J24, J31




iii


Contents


Page


Abstract ...................................................................................................................................................... 1


INTRODUCTION........................................................................................................................................ 1


I. THE SHARE OF LABOUR COMPENSATION IN INCOME
FROM THE MIDDLE OF THE 20th CENTURY ............................................................................. 3


II. CAUSES OF THE EVOLUTION OF THE SHARE OF LABOUR COMPENSATION .............. 5
A. Identification of functional distribution determining factors ............................................................ 5
B. The evolution of productivity ........................................................................................................... 6
C. The evolution of real wages .............................................................................................................. 8
D. Once again, functional distribution: productivity and real wages as a whole................................. 11


III. FUNCTIONAL DISTRIBUTION AND THE EXPENDITURE APPROACH:
RELATIONS BETWEEN THE TWO SIDES OF INCOME ........................................................ 14
A. Income, consumption and investment in Argentina ........................................................................ 14
B. Income, consumption and investment from an international perspective ....................................... 16


IV. CONCLUSIONS ................................................................................................................................. 19


REFERENCES ........................................................................................................................................... 21






SHARE OF LABOUR COMPENSATION
AND AGGREGATE DEMAND –


DISCUSSIONS TOWARDS A GROWTH STRATEGY
Javier Lindenboim, Damián Kennedy and Juan M. Graña*


Abstract


Economic growth strategies of developing countries have focused in the last decades on expanding
their exports. In that scheme, wage compression seems necessary in order to compensate the observed
slow productivity pace achieving, therefore, “competitiveness”. The core of this discussion is,
undoubtedly, how the national product is appropriated through wages and surplus, i.e. the factorial
income distribution. From that viewpoint, this paper discusses the long-term impoverishment of
Argentinean workers through two key aspects of the economic process: on one hand, the way in which
labour force is allocated, by analysing the relationship between real wage and productivity. On the
other, how income is used in the acquisition of consumer goods and capital formation. In order to
fully comprehend those trends, this paper recourses to an international comparison with two types
of countries: the developed ones (United States of America, France and Japan) and the largest Latin
American economies (Brazil and Mexico). As these processes take place in the long run, this paper’s
analysis period will start from the 1950s.


INTRODUCTION


According to the Trade and Development Report 2010 of the United Nations Conference on Trade
and Development (UNCTAD), the growth strategy relying on exports, which was implemented by
many developing countries, limits the increase of wages in order to maintain competitiveness. This
process would cause the weakening of domestic demand as an economic growth factor. Hence, a wage
compression strategy will be beneficial only if the source of economic growth intended to be imposed
(external demand) is greater than the source that was left behind (domestic demand). At the core of this
debate lies the question of factor income distribution; that is, the analysis of what share of total income is
to be retained by workers through wages and which is to be kept by companies under any of the different
forms of surplus.


Despite the importance attached by the most diverse theories and its key role in research and in the
economic debate in Latin America (within the context of the Import Substitution Industrialization (ISI)
model followed by many Latin American countries), its analysis has been progressively set aside since the
mid-1970s, especially in Argentina, where such process was accompanied by a lack of adequate official


* Main Researcher and Research Scholarship Holders, National Council of Scientific and Technical Research of Argentina
(Consejo Nacional de Investigación Científica y Ténica - CONICET), Centre for Studies on Population, Employment and
Development, School of Economics, University of Buenos Aires (Centro de Estudios sobre Población, Empleo y Desarrollo,
Facultad de Ciencias Económicas de la Universidad de Buenos Aires -CEPED-FCE-UBA – Av. Córdoba 2122 – Phone/Fax:
4374-4448 extension 6561) (lindenboim.uba@gmail.com; damian.kennedy@hotmail.com; juan.m.grana@gmail.com).




2


statistics. Fortunately, the analysis and the availability of information have slowly started to change over
the last years.


In this context we conduct this research on the share of labour compensation in income, the starting point
to study – at least – two aspects we believe essential to clear out the specific characteristics of the economic
process of any country, in this case, Argentina. In short, the analysis of the functional distribution of income
allows, on the one hand, to reveal how workforce is allocated from the analysis of the evolution of the
relation between labour force productivity and real wages, which, in turn, allows for the identification
of a country’s annual income source and, particularly, the sources of surplus. On the other hand, if the
expenditure approach is incorporated to the analysis, it can be identified how income is allocated to the
purchase of consumer goods and capital formation resulting from such process.


Within this context, the purpose of this document is to analyse the evolution of the economic process in
Argentina from the approach above described, in light of the experiences of other economies. For the
purpose of international comparison, we will take into account two types of countries: the developed
countries and Latin American countries. Regarding the former, we will compare the results with countries
featuring different forms of development: the United States of America, Japan and France. Regarding
Latin American countries, our comparative analysis is restricted to the two major countries in the region
in terms of economy size, namely Brazil and Mexico. By this comparison we do not pretend to apply
the analysis of the Argentine case to the selected countries. Rather, our intention is to draw a distinction,
whenever possible, between the characteristics specific to Argentina, those shared by Latin American
countries and, last, those common to all countries chosen for comparative analysis.


The construction of the variables used in this study was based, except for some minor exceptions, on
the information supplied by the national bureaus of statistics of the selected countries,1 following the
methodology applied in the case of Argentina (Graña and Kennedy, 2008a). Very briefly, the starting
point is the estimates of the System of National Accounts for the aggregates of employee compensation,
income at current and constant prices, and the absolute number of total employment and wage earners.
The result obtained from dividing labour compensation by the total number of wage earners is the average
salary, which is then deflated by the Consumer Price Index to obtain an estimate of the evolution of real
wages. Moreover, by dividing income at constant prices by total employment, we obtain an estimate
of the evolution of productivity, also called average output or output per worker. In general terms, this
study will analyse the period ranging from the 1950s to most recent years.2 Not much progress has been
made, however, in the comparative analysis of all the variables under study for the first years, given that
such information is not yet available for all selected countries. This is why comparisons are made with
respect to the variables’ average values from 1980 to 1982.3


Section I shows our approach to functional income distribution and its evolution in Argentina and in the
selected countries. We address its determining factors (productivity and real wages) as well as its trends
in section II, whereas in section III we analyse the relationship between such income and the components
of the aggregate demand, consumption and investment in Argentina from an international – comparative
perspective. Last, section IV includes some partial conclusions and questions for further analysis.


1 It may not be perfect, but the comparability of international data is guaranteed under the National Account System
guidelines.
2 In this respect, we must make reference to the particular situation affecting the gathering and construction of statistical
data in Argentina. Although we present information up to 2009, we can certainly refer to the events that took place up
to 2006, given that from then onwards, the quality and reliability of the indexes prepared by the Argentina Bureau of
Statistics (Instituto Nacional de Estadísticas y Censos – INDEC) are very controversial.
3 The fact that we take a three-year period rather than a specific given year is aiming at reducing the chances of considering
a period of time featuring very special characteristics that may distort the rest of the series of the variable under analysis.




3


I. THE SHARE OF LABOUR COMPENSATION IN INCOME
FROM THE MIDDLE OF THE 20th CENTURY


As briefly stated in the introductory paragraphs, in contrast to developed countries, the information
available on factorial income distribution in Latin American countries has not been collected on a regular
basis. Data on the Argentine case for the entire period of analysis could be obtained for the purpose of
conducting this study, but scarce information regarding Brazil and Mexico could be gathered, though.
Chart 1 shows the information available for the selected countries.


As can be seen in chart 1, the share of labour compensation in total income ranged from 45 per cent to
50 per cent from the beginning of the period of analysis and up to 1955 (when President Juan Domingo
Perón was overthrown during his second administration). From 1955 onwards, it dramatically fell,
reaching 36.5 per cent in 1959. Following the instability of the early 1960s, a steady recovery started.
By the early 1970s, the share of labour compensation ranged from 42.5 per cent to 45 per cent, that is,
a step behind its values in the previous decade. The new (and significant) growth experienced between
1972 and 1974 (1974 and 1954 being the years when it hit its historic highs) is the onset of, first, the
1.5 percentage point fall resulting from the 1975 adjustment plan and, second, its 17 percentage points
decrease explained by the outbreak of the military dictatorship that seized power in 1976. If we further
consider the reduction of 1977, the share of labour compensation fell far beyond 30 per cent, 7 percentage
points below its – till then – historic low of 1959.


Since then, the “wage share” fluctuated significantly from its lowest value to its peak of 40 per cent in
GDP. In this way, the growth observed up to 1980 dramatically fell over the last years of the de facto
administration in such a way that in 1982 its value was close to 29 per cent, a proportion even lower
than its low of 1977. There was a recovery upon the return to the democracy in 1983, an upward trend
that continued from 1984 to 1986 but which completely collapsed at the end of the administration of


Chart 1


SHARE OF LABOUR COMPENSATION IN GDP AT FACTORS COST OR BASIC PRICES:
ARGENTINA, BRAZIL, FRANCE, JAPAN, MEXICO AND THE UNITED STATES, 1950–2009


(Per cent)


Source: Graña and Kennedy, 2008a; and data compiled by the authors, based on information from the BEA-USA; INSEE-France;
Statistics Bureau of Japan; IBGE and IPEA, Brazil; National Institute of Statistics and Geography of Mexico (Instituto
National de Estadísticas y Geografía – INEGI), Mexico; ECLAC, Statistical Yearbook (CEPALSTAT); and ILO, LABORSTA.


20


30


40


50


60


70


Brazil


Mexico


France


United States


Japan


Argentina


1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2009




4


President Raúl Alfonsín. Driven by a hyper-inflationary depression, the share of labour compensation
fell to a new historic low (28.6 per cent). By the early 1990s, it seemed to grow above what has been its
“cap” during so many years, by reaching 45.6 per cent. The “tequila crisis” that took place in the mid-
1990s caused it to decrease, however, to 37.4 per cent. It subsequently declined 12 additional percentage
points with the great devaluation of 2002, which marked the end of the Convertibility regime, reaching
again a historic low.


In short, the outbreak of the military dictatorship lead to a huge decrease in the share of labour compensation
in total income, hitting a low close to 30 per cent, a value that was repeatedly achieved as a result of the
sovereign debt crisis (1982), the hyper-inflation (1989–1990) and the end of the Convertibility regime
(2002).


Following the end of Convertibility, and within a context of an annual economic growth close to 9 per
cent, the share of labour compensation increased significantly up to 2006, although it could not recover
completely from the reduction driven by the devaluation of the Argentine peso in 2002. This recovery
took place over the last years, but we cannot be certain taking into account the lack of suitable information
available as mentioned above. Should that be true, thus, it can be concluded that it took six years (five of
which registered a great economic expansion) to recover what had been lost in almost one year (in 2003,
the value slightly reduced). If so, the share of labour compensation in total income would now be close
to its “cap” reached under the neoliberal policy.


So, which are the distinctive features that differentiate the share of labour compensation in Argentina
from that of the selected countries and which common characteristics do they share?


Without pretending to thoroughly analyse the evolution of the share of labour compensation over all
historical periods, chart 1 further shows that Argentina shares with the United States, France and Mexico,
a declining trend of the “wage share” in total income from the 1970s onwards, whereas Brazil exhibits a
strong downward trend starting in the early 1990s. Japan is the only country without registering a decline
in the share of labour compensation, although it neither increases. To sum up, in general terms, the decline
or stop in the growth of the share of labour compensation in total income from the mid-1970s seems to
be a worldwide phenomenon.


Now, this similarity becomes less significant when evaluating both the magnitude and variability of the
evolution of each country’s share of labour compensation. Thus, whereas in the United States and France
the share of labour compensation has fallen by about 5 percentage points over the last thirty years, in
Argentina, taking into consideration not the 1974 “peak” but the values of the early 1970s, by 2006, the
fall in the share of labour compensation has doubled such value. If we do consider the 1974 peak and
the values of most recent years, by 2009 the decline was also of 10 percentage points. In Mexico, the
situation is even worse than in Argentina, whereas Brazil stands somewhere in between since the 1990s.


The same may apply in respect to the variability of the share of labour compensation. From chart 1 it
further follows that the fall in the developed countries is relatively smooth (Japan has the same behaviour
although no decline is observed), in contrast to the sharp fluctuations in Latin American countries,
especially in Argentina.4


Briefly, from the analysis of the functional distribution of income it may be followed that Latin American
countries, besides their own specific features, share common characteristics when compared to developed
countries. Unfortunately, these characteristics are negative.


4 We further put forward for analysis the question regarding the significant gap in absolute terms of the share, close to
60 per cent in developed countries and below 50 per cent in Latin America. In view of the approach followed in this study,
we will focus on the evolution of such variables rather than in their absolute values.




5


Now then, what lies behind these figures? On what factors does functional income distribution depend?
How can it be explained such a decline and variability in the share of labour compensation in Argentina
and Latin America? These are the questions that will be addressed in the following section.


II. CAUSES OF THE EVOLUTION OF THE SHARE OF LABOUR COMPENSATION


A. Identification of functional distribution determining factors


As noted in the introduction, functional income distribution allows for many analyses, including the study
of how workforce is allocated, from the analysis of the relationship between productivity and real wages.
To clearly specify the scope of such relation, it is necessary to present the mathematical breakdown of
functional income distribution.


The starting point is, for sure, the result obtained from dividing employee compensation (including
employees’ and employers’ contributions to the social security system) by total income, represented by
Gross Domestic Product at basic prices (GDPbp), at current prices. The numerator results, in turn, from
multiplying the average monthly salary (Wmonth) by the number of months and the total number of wage
earners, while the denominator is equal to GDPbp at constant prices (cons pr) multiplied by the Implicit
Price Deflators (IPD).5 In the second line, we multiply and divide the denominator by the number of
months in a year and the total volume of employed people, and regroup. Finally, in the third expression,
a specific name is assigned to each of the three components of the mathematical expression, as follows:


where: Wmonth: Monthly salary IPD: Implicit Price Deflator
GDP: Gross Domestic Product bp: basic prices
cons pr: constant prices


The first component is Labour Costs, which comprise the costs incurred by an employer in paying an
employee (that is, the weight of wages in the employer’s income) and they are estimated by deflating
nominal wages by a price index representative of production, in our case, the GDP’s IPD. The second
component is the inverted productivity (reflecting its opposite impact on the share of labour compensation),


5 In fact, the right thing to do would be to estimate these variables in worked hours. However, there is no reliable
information available in Latin America in this respect to cover the wide period under analysis. That is why we will conduct
the analysis in terms of number of people employed, rather than in terms of number of hours worked, and monthly wages,
instead of the hourly wage. For mathematical expressions based on the number of hours worked, please refer to Graña
and Kennedy (2008b).



bp
cons pr


month


GDP *IPD
earners Wage*12*W


Income
compensation Employee


==Share




Employment


earnersWage
*


Employment*12


GDP


1
*


IPD


W


earnersWage*12*
Employment*12


GDP
*IPD


earnersWage*12*W
bp
cons pr


month
bp
cons pr


month ==Share



share earners Wage*


Productivity
1


*CostsLabour=Share




6


which is obtained from dividing GDP at constant prices by the total number of employed people.6 Last,
wage earners share (the ratio between wage earners and the total employment) has a positive effect on
the share of labour compensation and works as an “adjustment” variable necessary when considering
wage earners to estimate income and the total number of the employed when calculating productivity.7


So, as the focus is on the relation between what workers produce and what they receive in return, instead
of analysing labour costs we will concentrate on real wages; that is deflating them by a CPI. Despite
being constructed differently, the evolution of both variables in the selected countries is very much alike
over most of the period of analysis.8


In this way, the evolution of the share of labour compensation may be explained by different behaviours
of its determining variables. To be more precise and just to mention some extreme paradigmatic examples,
a decline in the wage share is not necessarily detrimental to workers, provided it derives from real wages
that grow at a slower pace than productivity. In this line of thought, an increase in the share of labour
compensation is not necessarily in the best interest of workers, if it is owed to real wages that fall less
than productivity.


In view of this, how is it explained the evolution of the share of labour compensation in Argentina since
the mid-1950s, as mentioned in section I above? The answer to this question leads to discuss the following.


B. The evolution of productivity


The evolution of productivity in Argentina for the period of analysis is presented in charts 2 and 3, as
compared to developed and other Latin American countries, respectively.


The first twenty years for Argentina constituted a period of clear expansion – with some years of stagnation
– with an aggregate growth of 62 per cent. This ongoing and steady upward trend under the ISI model
was deeply modified in the mid-1970s. From the outbreak of the military dictatorship in 1976 to the
implementation of the Convertibility regime in 1991, productivity stagnated in the first years and then
declined over the remaining years of the 1980s, with a very fluctuating trend. Thus, productivity in 1990
was 5 per cent lower than in 1970. In other words, in almost 20 years, output per worker did not increase.


This trend seems to change completely in the early 1990s, exhibiting an expansion over 27 per cent
from 1990 to 1994. It is worth noting that this growth is due more to a destruction of low productivity
companies in a context of trade liberalization and a currency appreciation (plus the privatization of public
utilities and machinery imports by the most concentrated companies) rather than to a true development of
work production capacity.9 Following the stagnation driven by the tequila crisis, productivity continued
its way up. This trend shifted due to the economic recession of the last years of the Convertibility regime
(1998–2001).


As regards the present process, up to 2006, economic growth was driven by a greater absorption of
workforce. Productivity, thus, exhibited no great dynamism, achieving a value slightly above its top


6 That is to say, this is not exclusively related to wage earners, for it is impossible to estimate how much each class of
worker contributed in the generation of total income. This implies to assume that the productivity of wage earners and
that of the total employed evolve in the same way.
7 This variable has a long-term upward trend in all selected countries. However, both in Argentina and in the United
States, such growth is not very significant. Thus, its impact on the evolution of the share of labour compensation in
income is marginal.
8 If not the case, it will be expressly so stated.
9 A clear effect of this process was the evolution of the unemployment rate, which increased from 6 per cent in the 1980s
to 18 per cent by the mid-1990s.




7


value during Convertibility. In this way, by 2006, productivity was 32 per cent higher than in the early
1970s and 25 per cent higher than the average value between 1980 and 1982. Likewise, what apparently
occurred in the years thereafter would be a sign of a more favourable dynamics of work production
capacity, exhibiting a small fall in the last year. Thus, by 2009, domestic productivity would be 12 per
cent and 36 per cent higher than the highest values reached during the Convertibility Regime and the
period of analysis, respectively.


Chart 2


PRODUCTIVITY: ARGENTINA, FRANCE, JAPAN AND THE UNITED STATES, 1950–2009
(Index numbers, 1980–1982 average = 100)


Source: Graña and Kennedy, 2008a; and data compiled by the authors, based on information from the BEA-USA; INSEE- France;
and Statistics Bureau of Japan.


1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2009
10
20
30
40
50
60
70
80
90


100
110
120
130
140
150
160
170


Argentina


France


United States


Japan


Chart 3


PRODUCTIVITY: ARGENTINA, BRAZIL AND MEXICO, 1970–2009
(Index numbers, 1980–1982 average = 100)


Source: Graña and Kennedy, 2008a; and data compiled by the authors, based on information from IPEA and IBGE-Brazil; National
Institute of Statistics and Geography of Mexico (Instituto National de Estadísticas y Geografía – INEGI), Mexico; ECLAC,
Statistical Yearbook (CEPALSTAT); and ILO, LABORSTA.


50


60


70


80


90


100


110


120


130


140


150


1970 1975 1980 1985 1990 1995 2000 2005


Mexico


Argentina


Brazil


2009




8


What can be said about this productivity evolution in light of the experiences of other economies? As
shown in chart 2, productivity in the three developed countries shows a practically continuous upward
trend during the sixty years under consideration (the only exception being the significant United States
stagnation between the mid-1970s and the early 1980s). The smaller dynamism of productivity in Argentina
is clearly visible by the fact that over the period of analysis, work production capacity of work grew by
about 30 per cent, in contrast to the other countries, where it increased by 45 per cent to 60 per cent.


If we trace the analysis back in time and compare the values with those reached in the early 1970s, a turning
point in Argentine history, the gaps are even greater. Whereas in this case, the expansion in Argentina
reached the same level (considering the stagnation of the 1980s), in the United States, it increased to
75 per cent, in France, 93 per cent and in Japan, 107 per cent. At this point it should be remembered that
the comparison is limited only to the evolution of work production capacity and not to variables absolute
values. Nevertheless, we can confirm that such dynamics implies a broadening of productivity absolute
gap that makes Argentina depart from the selected countries.10


Compared to Latin American countries, as shown in chart 3, the stall and decline in productivity in
Argentina during the 1980s is shared by the other countries of the region. In the early 1990s, productivity
was 10 per cent lower than the 1980–1982 average. The behaviour of the variables in the early 1990s is
also similar in other countries of the region, although they differ in intensity: whereas Mexico, by 1998,
after the tequila crisis, equalled the level of growth of Argentina, in Brazil, the increase was slower. During
the last years of the 20th century and the first years of the 21st century, Mexico, Brazil and Argentina
once again had similar values: all of them showed a stagnation and/or a decline of productivity, which
expanded once again in the most recent years, the rate of growth being higher in Mexico (similar to
Argentina’s) than Brazil.


In short, given the similarity in the productivity dynamics of Latin American countries with respect to
Argentina, the widening of the absolute gap of productivity observed in comparison with the developed
countries can be interpreted as well as a phenomenon attributable also to the two biggest countries in
Latin America.


C. The evolution of real wages


As in the case of productivity, charts 4 and 5 show the evolution of real wages in Argentina for the period of
analysis along with the values corresponding to the developed and Latin American countries, respectively.


As can be seen from those charts, under the ISI model, in general terms, there was an upward trend in
real wages (despite that the drop between 1958 and 1959 did away with the recovery achieved over a
decade), so that by the early 1970s real wages grew by 23 per cent with respect to 1950. This upward
trend observed in the quarter of the 20th century continued during the following three years; however, it
was temporary: the “Rodrigazo”11 and, especially, the military dictatorship did away not only with this
last expansion but with all the progress made since the middle of the century. At the end of the military
dictatorship, the values returned to this level after an increase explained by a growing currency appreciation.


10 In one sense, the backwardness of production would widen, even if the evolution were the same, as for instance,
absolute productivity in the United States is higher. Hence, in the event of a growth similar in percentage terms, in absolute
terms, such expansion would be proportionally higher. In other words, if evolving at the same rate, the relative gap of
productivity remains unchanged, the absolute distance, instead, widens.
11 The “Rodrigazo” was an adjustment economic plan implemented in 1975 by Peron’s administration, which implied the
increase of public utilities rates, the removal of price controls in some markets and the freezing of wages within a context
of high inflation. It is known by this term after the name of the Ministry of Economy that promoted its implementation:
Celestino Rodrigo.




9


The 48 per cent rise observed during the first two years of the recovery of democracy was temporary
as well: the bouts of inflation at the middle of the 1980s and the hyperinflation went far beyond the
military dictatorship, in as much as real wages in 1989 just represented 65 per cent of the purchasing
power achieved by the early 1970s. Although under completely different circumstances, the logic behind
the Convertibility regime was not that much different: in the context of nominal stabilization and the
appreciation of the Argentine peso, there was an initial 35 per cent recovery, a great portion of which was


Chart 4


REAL WAGES: ARGENTINA, FRANCE, JAPAN AND THE UNITED STATES, 1950–2009
(Index numbers, 1980–1982 average = 100)


Source: See chart 2.


20


40


60


80


100


120


140


160


Argentina


1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2009


United States


Japan


France


Chart 5


REAL WAGES: ARGENTINA, BRAZIL AND MEXICO, 1970–2009
(Index numbers, 1980–1982 average = 100)


Source: See chart 3.


20


30


40


50


60


70


80


90


100


110


120


130


140


150


1970 1975 1980 1985 1990 1995 2000 2005


Brazil
Mexico


Argentina


2009




10


subsequently lost due to the increasing unemployment rate, the worsening of the employment conditions
and the economic stagnation.


If there were any hope that the purchasing power of wages could not get even worse, the currency
devaluation of January 2002, after an inflationary period, wiped all hope away: real wages dropped by
more than 29 per cent between 2001 and 2003, reaching a new lowest point in history, and representing
barely more than half of its level in the early 1970s. With respect to the most recent process, up to 2006,
besides the 26 per cent increase, real wages have not recovered from the fall caused by the devaluation.
Thus, wage earners’ purchasing capacity barely represents 75 per cent of its value in the reference years.
That is to say, over the last half of the century, the working class could not make any progress in terms
of quality of life. Rather, it showed a downward trend over the last thirty years.


If we do consider the questionable information available for the 2007–2009 period, the growth in real
wages would have been sufficient to return to its pre-devaluation value. As stated in the analysis of the
share of labour compensation, if the values of the last three years are confirmed, it took almost six years
of growth for real wages to recover from a fall that mostly took place in just one single year. In any case,
it should be reminded that, even when considering these last three years, the purchasing power of wages
would rise today to 85 per cent of its level at the reference period and 75 per cent of that reached at the
early 1970s. There are no doubts as to the fact that the situation would be even worse if we consider the
also questionable information available for 1974 (in terms of quality of statistics): real wages in 2009
would be 43 per cent lower than 1974.


Under an international comparative analysis of real wages, it may be followed from chart 4 that the 1970s
was also a turning point in real wages trends also for the selected developed countries. In contrast to
Argentina, in this case, however, such a shift in the trend resulted in a slowdown in growth rates, which
still continues. This period further presented, for all the three selected countries under comparison, some
years of stagnation, others of decline, but in no way did they affect the upward trend. In this way, during
the first stage – until 1970 – the increase was of 55 per cent in the United States, 109 per cent in France
and 167 per cent in Japan. These values, instead, decreased to 34 per cent, 82 per cent and 72 per cent,
respectively, in the 1970–2009 period, despite being a longer term.


As regards the comparison with Latin American countries, it should be first pointed out the difficulties
encountered to build up the series.12 That being said, chart 5 shows that, as in the case of productivity,
compared to the dynamics of the developed countries, the trend of real wages matches that of Latin
American countries. This does not affect its own specific characteristics.


In this way, it can be concluded that the evolution of real wages in Brazil is more promising that in Argentina
and Mexico (opposite to the conclusions drawn in terms of productivity). Despite some sharp falls, there
is a clear upward trend, although during the 1990s and the first years of the 21st century, real wages were
quite similar to the values reached in the 1980s. Mexico, in turn, showed an evolution identical to that of
Argentina “at both ends” of the segment (i.e., between the reference period and the last years), although
with a bit different trend in between: the continuous fall during the 1980s pushed real wages down – at
the end of the decade – to a level representing half of its initial value, when a slow but constant recovery
started (with some difficulties, especially the tequila crisis), achieving by the middle of the first decade
of the 21st century 80 per cent of its value at the reference period.


12 The Brazilian case is so complicated that the series could not be estimated by applying the method specified in the
introductory paragraphs. We resorted, then, to the evolution data supplied by specific surveys.




11


In a few words, the widening of the gap of the purchasing power of wages previously observed in Argentina
in relation to the “developed” countries is present, at least from the 1980s onwards, also in Mexico and,
to a less extent, in Brazil.


D. Once again, functional distribution: productivity and real wages as a whole


After individually analysing in the previous section the evolution of productivity and real wages in
Argentina from an international perspective, let’s now study how these variables jointly influenced the
dynamics of the functional distribution of income. To such end, chart 6 was prepared.


Except for the first two years (where real wages increased above productivity, which rise at a steady
pace), until the early 1970s, the decline in the share of labour compensation is owed, in general terms,
to a relatively continuous increase in productivity, well above the so increasing real wages (61 per cent
as against 23 per cent).13


Since then and up to the beginning of the 1990s, the evolution of the share of labour compensation is
almost completely explained by the changes in real wages, as productivity still remained at relatively
constant levels or was even declining. Between 1983 and 1989, the share of labour compensation not only
stays – between ends – at its historic low but hides the worst possible scenario behind it: a reduction of
real wages (35 per cent between 1983 and 1989) and of productivity (11.5 per cent for the same period).


13 This general process can be divided in two large periods, the dividing point being in the early 1960s. Thus, up to then,
the decline in the share of labour compensation was explained by an increase of productivity higher than that of real wages,
whereas the growth observed in the second period is owed to real wages being quite a bit more dynamic than productivity.


Chart 6


SHARE OF LABOUR COMPENSATION IN GDP AT BASIC PRICES,
PRODUCTIVITY AND REAL WAGES: ARGENTINA, 1950–2009


(Index numbers, 1980–1982 average = 100)


Source: Graña and Kennedy, 2008a.


50


60


70


80


90


100


110


120


130


140


150


1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005


Wage share


Productivity


Real wage


2009




12


From 1989 to 2002 (that is, a period covering the
implementation and the exit from the Convert-
ibility regime), the share of labour compensation
remained also at around its low. This process
combines a continuing worsening of real wages
(16 per cent exclusively attributed to the devalua-
tion of the peso) with a rise in productivity (27 per
cent for almost the same period). Finally, behind
the recovery of the share of labour compensation
up to 2006 there lies an increase of real wages
higher than that of productivity (17.5 per cent
and 10 per cent, respectively), featuring a specific
characteristic: whereas productivity recovered
from its post-devaluation fall, real wages were
still 8.5 per cent below the value reached in 2001.
If we add to the analysis what might have hap-
pened in the next three years, this trend would
be strengthened as the increase of the share of
labour compensation from 30 per cent in 2002 to
41.2 per cent in 2009, would be explained by a
30 per cent expansion of real wages and of 20 per
cent in terms of productivity as well.


In short, backward looking at the process that
took place from 1950 to 2006, it can be clearly
followed that the decrease in the share of labour
compensation (from 48 per cent to 34 per cent
of total income) translated into an increase
of productivity (116 per cent) together with a
decline in real wages (15 per cent). If the period is
extended to the last three years, the situation does
not suffer from major changes: the share of labour
compensation decreases to 41.2 per cent while
productivity grows by 137 per cent and real wages
fall by 6 per cent. This process may be divided into
different periods. However, the main turning point
took place in the middle 1970s, as may be inferred
from the analysis of the different variables. In both
periods, the share of labour compensation decreased
from 48 per cent in 1950 to an average of 44 per cent
between 1970 and 1972, and to 34 per cent in 2006
(or 41 per cent in 2009). However, the underlying
reasons of these falls are, for certain, different.
Whereas during the first term, productivity and real
wages jointly increased to 64 per cent and 25 per
cent, respectively, in the second period, productivity
grew by 32 per cent up to 2006 (44.5 per cent up
to 2009), at the same time real wages collapsed by
32 per cent until 2006 (25 per cent if the last three
years are taken into consideration).


Chart 7 shows the behaviour of the same variables
in the developed countries. As earlier specified,


Chart 7


SHARE OF LABOUR COMPENSATION IN GDP
AT BASIC PRICES, PRODUCTIVITY AND REAL
WAGES: THE UNITED STATES, FRANCE AND


JAPAN, 1950–2009
(Index numbers, 1980–1982 average= 100)


Source: Date compiled by the authors, based on information
supplied by BEA-USA; INSEE- France; and Statistics
Bureau of Japan.


Wage share Productivity Real wage


20
30
40
50
60
70
80
90


100
110
120
130
140
150
160
170


1950 1960 1970 1980 1990 2000


United States


20
30
40
50
60
70
80
90


100
110
120
130
140
150
160
170


1950 1960 1970 1980 1990 2000


France


20
30
40
50
60
70
80
90


100
110
120
130
140
150
160
170


1950 1960 1970 1980 1990 2000


Japan


2009


2009


2009




13


these countries did also suffer that turning point in the 1970s, in terms of the evolution of the share of
labour compensation and its determining variables. Now, the behaviour of these variables in each of the
two major periods differs from the Argentine case. Hence, from the middle of the 20th century to the
turning point, both productivity and real wages registered an upward trend of similar magnitude. At such
point, the trend changed and productivity increased at rates higher than those of real wages.14


Chart 8, which includes information on the behaviour of the same variables but for Latin American
countries, shows that Mexico follows a pattern very similar to that of Argentina: a decline of the share
of labour compensation resulting from an increase in the productivity and a reduction of real wages.
Brazil has, between ends, a different and apparently inconsistent pattern: whereas the share of labour
compensation slowed down, productivity stagnated although real wages grew.15


14 In France and Japan, a portion of the increase in the “wage share” of labour compensation observed during the first
stage, and the marginal fall during the second phase – despite the higher increase in productivity – owes to the rise of the
wage earners rate (0.6 per cent and 1.3 per cent annually, respectively).
15 This apparent inconsistency derives from the different behaviour of labour costs and real wages in the Brazilian
economy. In the same way as real wages exhibits a value 20 per cent higher with respect to the point of comparison, labour
costs are reduced in about 10 per cent during the same period of time. This difference arises, as previously explained, by
the diverting behaviour among the CPI and the IPD. From 1994 to 1995, the former increases 66 per cent, whereas the
latter rises 93.5 per cent. From then onwards, both variables continue evolving quite at the same pace, however the gap
between still remains.


Chart 8


SHARE OF LABOUR COMPENSATION IN GDP AT BASIC PRICES, PRODUCTIVITY AND
REAL WAGES: BRAZIL AND MEXICO, 1950–2009


(Index numbers, 1980–1982 average = 100)


Source: Data compiled by the authors, based on information from IPEA and IBGE, Brazil; National Institute of Statistics and
Geography of Mexico (Instituto National de Estadísticas y Geografía – INEGI), Mexico; ECLAC, Statistical Yearbook
(CEPALSTAT) and ILO, LABORSTA.


20
30
40
50
60
70
80
90


100
110
120
130
140
150
160
170


1950 1960 1970 1980 1990 2000


Brazil


20
30
40
50
60
70
80
90


100
110
120
130
140
150
160
170


1950 1960 1970 1980 1990 2000


Mexico


Wage share Productivity Real wage


2009 2009




14


III. FUNCTIONAL DISTRIBUTION AND THE EXPENDITURE APPROACH:
RELATIONS BETWEEN THE TWO SIDES OF INCOME


One of the ways the progress of the economic process of a country may be analysed is from the composition
of national demand; that is, by studying how income is allocated between final consumption and capital
formation. Certainly, this analysis is of paramount importance. But the purpose of this work is not to
analyse national demand in itself, but to have a comprehensive approach to this side of income produced
at a given period of time, which served as a connecting thread over the preceding sections. In other words,
this study is focused on the relation between income and its expenditure.


Indeed, a thorough study of this relationship, including a comparative analysis identical to that conducted
so far, would require additional work, in view that there is a wide range of indicators that may be built for
such analysis. Therefore, this work will only serve as an initial exploratory work. Therefore, we will focus
exclusively on the most significant characteristics that stand out. To such end, we will mainly study the
relationship between employee compensation and private consumption, on the one hand, and operating
surplus and gross domestic fixed investment (GDFI), on the other. Hence, we must first describe two
different essential characteristics.


First, income aggregates considered as such are, in fact, not the most appropriate components for the
intended analysis, for two main reasons. Firstly, the estimates of the income of self-employed workers
and employers (from their work activity) are included in operating surplus, where, in fact, they should
be part of aggregate income that is compared with private consumption, as this income arises from work
activities. Likewise, work-related income should be modified by the two-way transfers between families
and the General Government (mainly, retirement and pension plans and direct taxes), so as to estimate
the disposable income that may be allocated to consumption. In both cases, the difficulty arises from the
fact that, at least in Argentina, such adjustments can only be made for the estimates of the last decade and
a half. Thus, they should be disregarded when conducting a broader analysis as this one.16


Second, the nature of the comparative analysis requires that an assumption be made regarding how
employee compensation is allocated between consumption and savings. This paper is based on the
assumption that employee compensation is fully allocated to consumption, and, thus, the remaining goods
and services are acquired through operating surplus, whether acquired directly or through financing from
surplus-related sources. The purpose of this assumption is not to reflect what actually happens, but just
to portray the most favourable situation for wage earners for the purposes of conducting this analysis
inasmuch as a violation of the assumption would imply a lower share of labour compensation in private
consumption and, thus, a greater consumption through operating surplus sources.


That being said, we will now make a brief analysis of the relevant relations between income components
and final demand. As in the two sections above, we will start by analysing the Argentine situation and
will then make a comparative analysis with respect to the selected countries.


A. Income, consumption and investment in Argentina


A key aspect stands out from the information shown in chart 9: the significant gap between the share
of employee compensation and of private consumption in income and, consequently, the gap between


16 In the two prior works focused on the Argentine case (Lindenboim, Graña and Kennedy, 2006 and Graña and Kennedy,
2008b), by covering a shorter period of analysis, we have considered both aspects. The main findings are that, in no case, for
the 1993–2006 period, are the trends observed by comparing employee compensation and private consumption modified.
This is explained by the fact that the aggregates considered in each adjustment (income of self-employed workers and
of employers, on the one hand, and the net transfers between the State and families, on the other) represent, throughout
time, a relation that remains relatively unchanged of private consumption.




15


operating surplus and investment. However, these gaps show different values depending on the historical
period. Thus, it is clear that since the mid-1970s both “gaps” have got even wider, a trend that was partly
reversed following the end of the Convertibility regime.


As regards the beginning and end of ISI model, the share of the four macroeconomic aggregates as well
as the two relations among aggregates is quite similar. Certainly, there are significant particularities within
this twenty-year period that deserve to be highlighted.


Thus, from chart 10 it follows that while at the beginning, employee compensation represented about 70 per
cent of private consumption, its fall during the 1950s coupled with the stability in the share of private
consumption, resulted in a drop in the relation among both variables close to 50 per cent in 1959. The
other side of this process is the increase in the operating surplus, which does not translate into an increase
in investment. This means that, although by the late 1950s there was a rise in the share of investment
in income, such increase was not as high as that of operating surplus. There was, then, a growth of the
portion of operating surplus that, either directly or indirectly, is used as a source of private consumption.
In short, whereas by the middle of the 20th century, about half of the operating surplus was allocated to
private consumption, by the early 1960s, this percentage increased to 60 per cent. Having some specific
features, as can be inferred from the chart, what occurred during the 1960s shifted these trends and the
relations returned back to their levels in the 1950s.


After the outbreak of the military dictatorship and until the end of the 20th century, dynamics of the employee
compensation – consumption relation followed the same pattern as that of the 1950s, characterized, as
already mentioned, by an extreme volatility of the share of labour compensation in income. Thus, the
level reached after its collapse in 1976 translated into a reduction of the share of employee compensation
in private consumption. Opposite to the slight increase in the share of investment observed in the 1950s,
during the 1980s, investment represented a share in GDP lower than that under the ISI model.


No major changes took place in this regard during the 1990s. The truth is that over the first years, there
was a significant improvement (resembling that of the share of labour compensation) explained by the


Chart 9


EMPLOYEE COMPENSATION, OPERATING SURPLUS, PRIVATE CONSUMPTION AND GROSS DOMESTIC
FIXED INVESTMENT IN RELATION TO GDP AT MARKET PRICES: ARGENTINA, 1950–2009


(Per cent)


Source: Economic Affairs Secretary (SAE), 1955; Argentine Central Bank (BCRA), 1975 and 1993; ECLAC, 1988 and 1991;
Bureau of National Accounts (DNCN); Household Permanent Survey (EPH) (INDEC); and Graña and Kennedy, 2008a.


10


20


30


40


50


60


70


80


1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005


Private consumption


Employee compensation


GDFI


Gross operating surplus


2009




16


growth of both the share of private consumption absorbed by employee compensation and the share of
investment in income. However, when looking at the entire period, such trends worsened, and the relations
among aggregates returned to their initial levels. It is also worth noting that these were the years when the
private sector was affected by a permanent deficit, as can be concluded from the chart showing that the
sum of the share of Gross Operating Surplus (GOS) allocated, either directly or indirectly, to consumption
or investment was well above 100 per cent. As such, this is one of the reasons that explain Argentina’s
need of permanent indebtedness which at last resulted in the collapse of the Convertibility regime.
Following such debacle, most recent years show promising signs: employee compensation has increased
in parallel with a stability of private consumption, which implies a rise in the percentage of employee
compensation in private consumption, whereas the relative fall of operating surplus is accompanied with
an increase in investment.


In short, by looking at the relation between these aggregates of the Argentine economy it is once again
easy to clearly distinguish the ISI model from the neoliberal policy. During the neoliberal era, the fall of
the share of labour compensation in income, which translated, as specified in the previous section, into
a sharp decline of real wages, did not even result in a greater share of investment in income, as some
economic theories would suggest.


B. Income, consumption and investment from an international perspective


The variables for each of the developed countries selected for analysis are portrayed in chart 11. At first
glance, considering them as a whole, the first thing that stands out is, in line with the behaviour of the
variables related to functional distribution, the stability of the components of final demand. A second
aspect is the level achieved by the series: in the three countries (in the case of Japan, since the early
1970s), employee compensation is barely below private consumption, which implies that the share of
consumption absorbed by wages is significantly higher.


Chart 10


EMPLOYEE COMPENSATION AS PER PRIVATE CONSUMPTION AND NON-WAGE CONSUMPTION
AND GDFI AS PER GROSS OPERATING SURPLUS (GOS): ARGENTINA, 1950–2009


(Per cent)


Source: Economic Affairs Secretary (SAE), 1955; Argentine Central Bank (BCRA), 1975 and 1993; ECLAC, 1988 and 1991;
Bureau of National Accounts (DNCN); Household Permanent Survey (EPH) (INDEC); and Graña and Kennedy, 2008a.


1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2009
15


20


25


30


35


40


45


50


55


60


65


70


75
Employee compensation / private consumption


Non-wage consumption / GOS
GDFI / GOS




17


Notwithstanding the foregoing, in the case of the
United States, the gap between employee com-
pensation and private consumption has widened
since the 1980s. Employee compensation has
shown a slightly downward trend in contrast with
private consumption, which has been increas-
ing. Opposite to this, there has also been a rise
of operating surplus coupled with a decline in
investment.17 Special attention should be paid to
another feature, namely, that the share of invest-
ment in income is very similar to the average rate
of the Argentine economy. This is a good indicator
that in Argentina (and indeed, in any country) a
given share of investment in total income should
not be set as a goal in itself to be achieved, rather
what should be taken into consideration are, above
all, the characteristics of such investment and the
incorporated technology.


In the case of France, two big periods can be
distinguished. From the middle of the 20th century
and up to the early 1970s, there has been a
steady growth of employee compensation (and,
accordingly, a fall in operating surplus) along
with a drop of the share of private consumption
in GDP and a rise of the share of investment.
Since then, the shares of such variables in total
income have remained practically unchanged,
employee compensation absorbing most of private
consumption. Similarly to the United States case,
investment is close to one fifth of GDP, that is, a
value similar to its counterpart in Argentina.


In Japan, instead, a different pattern was followed
up to the 1970s: a share of operating surplus
greater than the wage share, together with a fall
in private consumption and a significant increase
in the investment share in income, reaching
35 per cent. From that point onwards, a different
process has arisen: employee compensation, well
above operating surplus, absorbed practically all
private consumption, whereas operating surplus,
following the slow down of the 1970s, remained
at constant levels. By the end of the period,
the gap between employee compensation and


17 For being a world leader, this process implies an
important thread of analysis to account for the last
worldwide crisis (evidenced by the explosion of mortgage
debts and home debts) as well as the reasons that explain
the slow or none growth of the world economy.


Chart 11


EMPLOYEE COMPENSATION, OPERATING
SURPLUS, PRIVATE CONSUMPTION AND GROSS
DOMESTIC FIXED INVESTMENT AS PER GDP AT


MARKET PRICES: THE UNITED STATES,
FRANCE AND JAPAN, 1950–2009


(Per cent)


Source: Data compiled by the authors, based on information from
the BEA-USA; INSEE- France; and Statistics Bureau of
Japan.


10


20


30


40


50


60


70


80


1950 1960 1970 1980 1990


10


20


30


40


50


60


70


80


1950 1960 1970 1980 1990 2000


France


10


20


30


40


50


60


70


80


1950 1960 1970 1980 1990 2000


Japan


United States


Private consumption


Employee compensation


GDFI


Gross operating surplus


2009


2009


2000 2009




18


consumption widened, with a greater impact on the drop in the level of investment, getting about 20 per
cent in income.


Once again, Latin American countries resemble Argentina (chart 12). And, as can be expected in view of
the previous findings, Mexico is the country that most resembles the Argentine case. In this way, it can be
concluded that, since the 1970s, the drawback in the share of employee compensation in income has not
translated into a fall in private consumption, which is the same as saying that the increase of operating
surplus in income does not lead to a growth of investment share in income, remaining at around 20 per cent.


Last, the distinguishing feature of Brazil seems to be that the sharp fluctuations in the components of the
functional distribution of income do not have the same impact on those of the final demand. In connection
with these, up to the mid-1970s the share of consumption dropped and investment increased, whereas
in the coming years, investment levels tended to remain unchanged, opposite to the new fall in the share
of consumption. Besides the sharp changes in income components, from the information available in
this respect, it can be seen that they have a relatively constant level, in line with a correspondence in the
components of the aggregate demand.


To sum up, two distinctive features, which ought to be addressed in future research, can be drawn from
this analysis. On the one hand, the greater volatility of income components in the Latin American countries
selected for this study, especially in the case of Argentina, as already pointed out, correlates into also a
greater, although not that strong, volatility of national demand components. On the other hand, another
main aspect stands out, which, in our opinion, is of utmost importance: Latin American countries seem to
require greater and growing shares of operating surplus in income to reach similar levels of investment,
a characteristic that has intensified, especially in Argentina, from the mid-1970s onwards.


Chart 12


EMPLOYEE COMPENSATION, OPERATING SURPLUS, PRIVATE CONSUMPTION AND GROSS DOMESTIC
FIXED INVESTMENT AS PER GDP AT MARKET PRICES: BRAZIL AND MEXICO, 1950–2009


(Per cent)


Source: Data compiled by the authors, based on information from IPEA and IBGE, Brazil, National Institute of Statistics and
Geography of Mexico (Instituto National de Estadísticas y Geografía – INEGI), Mexico; ECLAC, Statistical Yearbook
(CEPALSTAT); and ILO, LABORSTA.


10


20


30


40


50


60


70


80


90


1950 1960 1970 1980 1990 2000


Brazil


10


20


30


40


50


60


70


80


90


1950 1960 1970 1980 1990 2000


Mexico


Private consumptionEmployee compensation GDFIGross operating surplus


2009 2009




19


IV. CONCLUSIONS


In the Introduction we noted that, according to the Trade and Development Report 2010, developed
countries’ growth strategy relied on an increase of exports, a strategy that, as such, implies a restriction
in the increase of wages and salaries.


To address this process, the main purpose of this document was to study the economic evolution of
Argentina from the 1950s until today from the viewpoint of functional income distribution and its
associated lines of investigation: the real wages – productivity relation, on the one hand, and the income
– final demand relation, on the other.


At the peak of the import-substitution industrialization model, there was a long debate on the two roles
of real wages, especially in Argentina. Employee compensation was considered a key factor for the
production of goods for domestic consumption (Candia, 2000) although there were restrictions to the
rate of wages and salaries as, when reaching a specific value, they had a negative impact on the external
sector (Canirot, 1983). Thus, this dual role and primary products international prices explained the
economic cycles of this model known as “stop and go” (Braun and Joy, 1968; Diamand, 1972). In this
regard, as shown in sections I and II above, employee compensation exhibited a relatively stable behaviour
(although it plunged in one decade and boosted in another) up to the mid-1970s, owing to the also stable
and, in general, growing trends of real wages and work production capacity. Indeed, the dynamics of both
determinants of the functional distribution of income much resembles that of the United States (although
at a lower rate than in France and Japan).


If, at least from this standpoint, the ISI process seems to be positive, this is so, in great part, because of
the economic process implemented thereafter. In the vast and diverse literature, virtually all scholars agree
that the “Rodrigazo” in 1975 coupled with the coup d’état in 1976 lead to the sudden abandonment of the
ISI model, which was replaced by a still consensual unnamed regime characterized by – especially during
the military dictatorship and the Convertibility regime – the trade liberalization, foreign indebtedness and
national currency overvaluation (Damill and Frenkel, 1993; Ferrer, 2004; Basualdo, 2006).


The plan implemented by the military dictatorship was explicitly aimed at dismantling a “defective
productive structure” created under State protectionism during the ISI model, and reducing real wages.
This latter purpose was achieved, as stated in section II above, and it far exceeded its expectations.
The former, instead, was not that “successful”: productivity stagnated in the mid-1970s. This situation
continued until the early 1990s and the share of labour compensation in income could do nothing but
fall. The intensification of this policy through the implementation of the Convertibility Plan succeeded
in the “modernization” of the production structure, certainly at the expense of the massive destruction
of companies. In this context, there was no need to resort to political repression for the maintenance of
the new deteriorated real wage level achieved by the hyperinflation of 1989 and 1990: unemployment
would serve as a disciplining factor.


However, the scenario dramatically worsened: the bases of such productivity growth has diluted since
the mid-1990s, so that the gap with developed countries that has been widening since the mid-1970s
could barely be reduced. But the situation got even worse: the huge crisis that marked the end of the
Convertibility regime lead to the greatest recession in history, a slump in productivity and a reduction
of the purchasing power of wages comparable to that caused by the outbreak of the military dictatorship
and the hyperinflation in the late 1980s.


In short, far from improving the inclusion of Argentina worldwide, the economic policy strategy “relying
on exports” implemented after the abandonment of the ISI model had the worst results: a serious reduction
of real wages coupled with a relative stagnation of productivity, if compared to the developed countries.
Mexico and, to a less extent, Brazil, have gone through relatively similar situations.




20


The economic evolution in Argentina, under the logics of the economic functioning set in the mid-1970s
had another significant and, unfortunately, negative aspect that can be drawn from the second line of
analysis conducted in this study: the growth in the operating surplus over the period under investigation,
as the other side of the share of labour compensation that shrank mainly due to the reduction of real wages,
did not translate into an increase in the share of investment, a situation that once again is shared by the
other selected Latin American countries. More precisely, as the share of investment in total income in all
selected countries is practically the same, in Argentina (as well as in Mexico and Brazil) a greater share
of operating surplus was needed to achieve similar levels of investment.


The economic process run after the exit from the Convertibility regime (a period still lacking a consensual
denomination) show very favourable trends: a sustained economic growth at high rates was observed
along with a behaviour of the variables discussed in this study completely different from that observed in
the previous period: productivity and real wages boosted and the share of investment in income increased
“despite” the fall in the operating surplus. This does not imply, for certain, an absolute recovery from the
problems created by the policies implemented for almost thirty years; the purchasing power of wages
remains far lower than the values achieved in the 1970s.


There are no doubts that the economic and social ups and downs in Argentina (and, in general, of Latin
America) are closely linked to the changes in the world economy. The ISI process took place in a context
where core countries continued implementing the so called Welfare State policy, which was abandoned
after the devaluation of the dollar and the petroleum crisis, and replaced by neoliberal policies. This
new stage in the world capital accumulation had a significant impact on Latin American economic life,
mainly through the growing capital inflows subject to the condition that neoliberal reforms be adopted.
Since then, these capital inflows that converted into sovereign debt became a new factor to be considered
in the economic life of the region during the 1980s. In this sense, the distinctive evolution in Argentina
over the 1990s is explained by its own economic policy scheme as well as by the many financial crises
throughout the world.


In most recent years, the countries with the greatest population in the world, which strongly demand raw
materials produced at large scale by the region, have pushed the basic equations constituting the limits
of Latin American economic policy. In view of all the above, it is worth asking if this new international
context, the rate of the economic recovery of the region after the crisis and the questioning of the growth
neoliberal scheme have significant differences that allow to speak of a new stage for Latin America or
whether it is just a favourable junction. Debates in the region in this regard have not ended yet.




21


REFERENCES


Basualdo E (2006). Estudios de historia económica argentina desde mediados del siglo XX a la actualidad,
FLACSO-Siglo XXI. Buenos Aires.


Braun O and Joy L (1968). A model of economic stagnation: a case study of the Argentine economy. The Economic
Journal, 78(312): 868–887.


Candia J (2000). Crisis del trabajo. Derrota obrera o revolución tecnológica? Revista Nueva Sociedad, Editorial
Texto Publishing House. Caracas, March–April.


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22


No. Date Author(s) Title


202 June 2011 Pilar Fajarnes An overview of major sources of data and analyses
relating to physical fundamentals in international
commodity markets


201 February 2011 Ulrich Hoffmann Assuring food security in developing countries under the
challenges of climate change: Key trade and development
issues of a fundamental transformation of agriculture


200 September 2010 Jörg Mayer Global rebalancing: Effects on trade flows and employment
199 June 2010 Ugo Panizza


Federico Sturzenegger
and Jeromin Zettelmeyer


International government debt


198 April 2010 Lee C. Buchheit
G. Mitu Gulati


Responsible sovereign lending and borrowing


197 March 2010 Christopher L. Gilbert Speculative influences on commodity futures prices
2006–2008


196 November 2009 Michael Herrmann Food security and agricultural development in times of
high commodity prices


195 October 2009 Jörg Mayer The growing interdependence between financial and
commodity markets


194 June 2009 Andrew Cornford Statistics for international trade in banking services:
Requirements, availability and prospects


193 January 2009 Sebastian Dullien Central banking, financial institutions and credit creation
in developing countries


192 November 2008 Enrique Cosio-Pascal The emerging of a multilateral forum for debt
restructuring: The Paris Club


191 October 2008 Jörg Mayer Policy space: What, for what, and where?
190 October 2008 Martin Knoll Budget support: A reformed approach or old wine in new


skins?
189 September 2008 Martina Metzger Regional cooperation and integration in sub-Saharan Africa
188 March 2008 Ugo Panizza Domestic and external public debt in developing


countries
187 February 2008 Michael Geiger Instruments of monetary policy in China and their


effectiveness: 1994–2006
186 January 2008 Marwan Elkhoury Credit rating agencies and their potential impact on


developing countries
185 July 2007 Robert Howse The concept of odious debt in public international law
184 May 2007 André Nassif National innovation system and macroeconomic policies:


Brazil and India in comparative perspective
183 April 2007 Irfan ul Haque Rethinking industrial policy
182 October 2006 Robert Rowthorn The renaissance of China and India: implications for the


advanced economies
181 October 2005 Michael Sakbani A re-examination of the architecture of the international


economic system in a global setting: Issues and proposals
180 October 2005 Jörg Mayer and


Pilar Fajarnes
Tripling Africa’s Primary Exports: What? How? Where?


179 April 2005 S.M. Shafaeddin Trade liberalization and economic reform in developing
countries: structural change or de-industrialization?


UNCTAD Discussion PaPers




23


No. Date Author(s) Title


178 April 2005 Andrew Cornford Basel II: The revised framework of June 2004
177 April 2005 Benu Schneider Do global standards and codes prevent financial crises?


Some proposals on modifying the standards-based
approach


176 December 2004 Jörg Mayer Not totally naked: textiles and clothing trade in a quota
free environment


175 August 2004 S.M. Shafaeddin Who is the master? Who is the servant? Market or
Government?


174 August 2004 Jörg Mayer Industrialization in developing countries: some evidence
from a new economic geography perspective


173 June 2004 Irfan ul Haque Globalization, neoliberalism and labour
172 June 2004 Andrew J. Cornford The WTO negotiations on financial services: current


issues and future directions
171 May 2004 Andrew J. Cornford Variable geometry for the WTO: concepts and precedents
170 May 2004 Robert Rowthorn and


Ken Coutts
De-industrialization and the balance of payments in
advanced economies


169 April 2004 Shigehisa Kasahara The flying geese paradigm: a critical study of its
application to East Asian regional development


168 February 2004 Alberto Gabriele Policy alternatives in reforming power utilities in
developing countries: a critical survey


167 January 2004 Richard Kozul-Wright
and Paul Rayment


Globalization reloaded: an UNCTAD Perspective


166 February 2003 Jörg Mayer The fallacy of composition: a review of the literature
165 November 2002 Yuefen Li China’s accession to WTO: exaggerated fears?
164 November 2002 Lucas Assuncao and


ZhongXiang Zhang
Domestic climate change policies and the WTO


163 November 2002 A.S. Bhalla and S. Qiu China’s WTO accession. Its impact on Chinese
employment


162 July 2002 Peter Nolan and
Jin Zhang


The challenge of globalization for large Chinese firms


161 June 2002 Zheng Zhihai and
Zhao Yumin


China’s terms of trade in manufactures, 1993–2000


160 June 2002 S.M. Shafaeddin The impact of China’s accession to WTO on exports of
developing countries


159 May 2002 Jörg Mayer,
Arunas Butkevicius
and Ali Kadri


Dynamic products in world exports


158 April 2002 Yılmaz Akyüz and
Korkut Boratav


The making of the Turkish financial crisis


157 September 2001 Heiner Flassbeck The exchange rate: Economic policy tool or market price?


156 August 2001 Andrew J. Cornford The Basel Committee’s proposals for revised capital
standards: Mark 2 and the state of play


155 August 2001 Alberto Gabriele Science and technology policies, industrial reform and
technical progress in China: Can socialist property rights
be compatible with technological catching up?


154 June 2001 Jörg Mayer Technology diffusion, human capital and economic
growth in developing countries




24


No. Date Author(s) Title


153 December 2000 Mehdi Shafaeddin Free trade or fair trade? Fallacies surrounding the theories
of trade liberalization and protection and contradictions in
international trade rules


152 December 2000 Dilip K. Das Asian crisis: distilling critical lessons
151 October 2000 Bernard Shull Financial modernization legislation in the United States –


Background and implications
150 August 2000 Jörg Mayer Globalization, technology transfer and skill accumulation


in low-income countries
149 July 2000 Mehdi Shafaeddin What did Frederick List actually say? Some clarifications


on the infant industry argument
148 April 2000 Yılmaz Akyüz The debate on the international financial architecture:


Reforming the reformers
146 February 2000 Manuel R. Agosin and


Ricardo Mayer
Foreign investment in developing countries: Does it
crowd in domestic investment?


145 January 2000 B. Andersen,
Z. Kozul-Wright and
R. Kozul-Wright


Copyrights, competition and development: The case of
the music industry


Copies of UNCTAD Discussion Papers may be obtained from the Publications Assistant, Macroeconomic and
Development Policies Branch (MDPB), Division on Globalization and Development Strategies (DGDS), United
Nations Conference on Trade and Development (UNCTAD), Palais des Nations, CH-1211 Geneva 10, Switzerland
(Fax no: +41 (0)22 917 0274/Tel. no: +41 (0)22 917 5896).


UNCTAD Discussion Papers are accessible on the website at http://www.unctad.org.




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