Wage determination, income distribution, and the design of change

Abstract

Existing alternative models of economic growth, whether based on neoclassical or Marxist thinking, provide an inadequate basis for designing public policies for evolutionary change in wage and income distribution patterns since these models are local to time and geography-specific historical evidence and do not incorporate mechanisms for a possible change from one pattern to another. Hence, both so-called Market and Marxist systems have issued very interventionist designs for economic development. This paper presents a model of an abstracted living system at the societal level which incorporates mechanisms of wage determination and disbursement of income. The behavior of this model is studied through computer simulation. Two potential modes of production are included in the model: formal and self-employed. However, the system thus represented creates a variety of wage and income distribution patterns. The realization of a specific pattern in this model depends not on assumptions about the initial conditions but on the dynamic interaction of the system variables and the social and legal norms concerning renting, financing of investment and choice of technology by the formal and self-employed sectors of the economy. Using this model, the paper explores entry points for evolutionary change in the wage and income distribution patterns currently existing in the developing countries.

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