ABSTRACT
Introduction It has become increasingly accepted by heterodox economists that in the era of the Keynesian compromise, the depletion of the reserve army increased labor share, reduced the rate of profit and directly or through its impact on policy served as an integral cause of the cyclical downturns. In the era of neoliberalism, do the economic and political weaknesses of labor mean that nexus no longer operates? In this chapter I provide a framework to understand cyclical labor shares based on reserve army theory and the influence of capacity utilization on the ability of firms to markup or pass along unit labor costs increases as price increases. While it builds on the work of colleagues it better handles the shift of labor shares from early expansion to late expansion and comes closer to a unified theory of labor share over the cycle. I then use this model to explore how the shift from the Keynesian compromise to neoliberalism has changed the relationship of cyclical labor share to the underlying determinants of capacity utilization and unemployment. It will be no surprise that the relationship of labor share to capacity utilization and unemployment has shifted between the two regimes. What may be more surprising is that the functional forms linking labor share to capacity utilization and unemployment have remained largely intact.
