Goodwin Equation

The Goodwin Equation models how economic growth and income inequality relate over time within a capitalist economy. It suggests that as workers' wages grow, they drive production, but profits tend to fluctuate, leading to cyclical changes in income distribution. When wages rise faster, inequality may decrease, but eventually, profits shrink, causing economic slowdowns. Conversely, when profits grow faster, inequality can increase. The equation captures these dynamics, illustrating how the interaction between wages, profits, and employment can create natural economic cycles, emphasizing the interconnectedness of income distribution and economic growth.