Monetary Policy and the Distribution of Income: Evidence for the United States and theUnited Kingdom

Abstract

The shift in the emphasis of macroeconomic policy during the late 1970s and early 1980s toward combating inflation rather than maintaining full employment and the associated tight monetary policies fostered by the majority of the advanced industrialized countries, caused interest rates to increase to unprecedented heights. Income distribution and unemployment are among the economic variables that may have been mostly affected by the new, restrictive menu of macroeconomic policy. Yet, little attention has been paid to the potentially profound effects of monetary policy and high interest rates on the functional distribution of income. 1 In this paper we set out to illuminate the issues surrounding the effects of monetary policy on changes in the income shares of industrial capital, financial capital, and labor in the nonfinancial corporate sector, in the United States and the United Kingdom? The second section develops a post-Keynesian-Kaleckian perspective of income distribution and a mechanism to show the way in which monetary policy might affect the distribution of income between the three aforementioned income groups.