Structural Change and the Income Distribution: a Post-Keynesian disequilibrium model

This paper extends the out-of-equilibrium literature to analyse a structural transition characterized by the emergence of a new sector that satisfies a want lower in the hierarchical scale. In particular, the dynamic interaction demand-supply can be a source of multiple long-run outcomes if both preferences and the technology evolve endogenously. It will be shown that a successful transition to a two-sector economy is ensured by a balanced distribution of innovative rents. Moreover, the full-employment region lies between two regions of classical and Keynesian unemployment, in contrast with the standard view of a negative relationship between real wages and employment. Finally, demand shortages, due to an unbalanced distribution, can bring about a long-run slump.