In recent years, there has been two contesting paradigms, ‘wage-led or income-led growth’ and ‘profit-led growth’ proposed in academic circles in Korea. However, there has been also a search for alternative distribution-growth model because the Southern European countries such as Portugal, Italy, Greece and Spain and some Latin American countries such as Brazil and Venezuela have failed from income-led growth policies adopted during 1990s and early 2000s under their socialist democratic regimes. The so-called ‘income-led growth policy’ adopted by the new Korean government established in May 2017 became a coined word by ILO (2010) in the literature of distribution-growth. It tries to trace the origin of worldwide stagnation after the global financial crisis of 2007 and finds its cause in the inequality of income from wage differential. It argues that since the rate of growth in wages is lower than the growth rate of GDP and therefore, domestic demand is lagging behind recovery. It proposes for increasing wages so that a virtuous circle of household income increase, consumption increase and domestic demand increase could be established. But there has been a criticism on income-led growth policy since it does not fit to the reality of the Korean economy as an export-oriented small open economy. They argue that the stagnation in the Korean economy is not due to low wage level but is due to stagnant investment and therefore, investment-led growth policy rather than income-led growth policy is more desirable to be adopted. They also argue that it is desirable to increase growth rate through investment and innovation and therefore, the government policy needs to be reoriented from income-enhancing policy to economic revitalization through structural reforms and promotion of corporate investment. It seems that it is difficult to link income-led growth policy to a significant consumption increase because of the high level of household debt and their precautionary consumption restraint for uncertain future.
  Theoretical background of wage-led or income-led growth theories can be traced back to Bhaduri and Marglin (1990), UNCTAD (2010), Stockhammer (2011), Storm and Naatepad (2011), Stockhammer and Onaran (2012) andLavoie and Stockhammer (2012). The empirical results on wage-led or income-led growth policy are mixed and inconclusive. Onaran and Galanis (2012) reports that an increase in wage income share will increase aggregate demand in US, Euro area, Japan and Korea but will decrease aggregate demand in China, India, Australia, South Africa, Argentina and Mexico which is in contradiction to the post-Kaleckian theoretical proposition that resource-rich large countries will benefit more from a wage-led growth policy. Onaran and Stockhammer (2005) has built a post-Keynesian open economy model of distribution, accumulation and employment and estimated the effect of lowering the wage share in a structural vector autoregression (SVAR) framework. They found that decreasing the wage share does not stimulate accumulation, growth and employment in both Turkey and South Korea. They have noted that the relation between wage share, investment, growth, and employment is similar in both Turkey and South Korea; however the former experienced low and the latter high growth rates due to different export-oriented growth strategies with a conclusion that the explanation for this difference is found in the field of institutions, power structure, and state policies.
  There are a few empirical studies using Korea-specific dataset. Hong (2014a) has estimated a demand-led growth model modifying Bhaduri and Marglin (1990) model. He finds that the increase in labor income share had stimulated consumption and investment in the period (1981- 1997) before the financial crisis in 1998 in Korea but since the propensity to consume out of labor income was weak, the wage-led effect on domestic aggregate demand was not strong. However, he finds that after the financial crisis the propensity to consume became stronger than before and the subsequent reduction in labor income share due to the financial crisis had weakened consumption considerably. During the post-crisis period, while the increase in capital income share did not contribute to the increase in investment and net exports, the wage-led effect on aggregate demand has strengthened. In another related paper, Hong (2014b) estimates a demand-led growth model combining demand system with productivity system following Storm and Naastepad (2011). He finds that during the post-crisis period (1999-2012) the increase in real income by 1 percentage point will increase real growth rate of GDP by 0.68-1.09 percentage point and labor productivity by 0.45-0.50 percentage point. Based on these estimates, he argues that treating labor income as cost elements only is one-sided analysis and that an income-led policy by increasing labor income will stimulate aggregate demand and productivity and will contribute to establish a virtuous circle of distribution and growth.
  On the other hand, Kim (2013) has found that aggregate demand system in Korea is profit-led structure in the sense that the increase in capital income share stimulates aggregate demand. Pyo, Chun and Rhee (2017) have estimated the growth rate of economy-wide nominal wage rate (3.69%), real wage rate (1.66%) and per-capita labor productivity (1.58%) respectively during the post global financial crisis period of 2009-2016. During the same period, the corresponding growth rates in manufacturing were nominal wage rate (4.34%), real wage rate (2.29%) and per-capita labor productivity (1.58%). It implies that the Korean economy during last 8 years after the global financial crisis in 2008 has experienced both nominal and real wage inflation surpassing the growth rate of per-capita labor productivity. During the same period (2009-2016), the real GDP and private consumption expenditure increased at the rate of 3.1% and 2.2% respectively. From this perspective, we can argue that the Korean economy has already experienced an income-led growth during the period after the global financial crisis in 2008 but its policy impact on private consumption expenditure was very small and insignificant.
  The investment-led growth policy proposed as an alternative for income-led growth policy has the following theoretical implications. If an economy’s demand–led growth is supported by a debt-financed consumption-led system, it may confront difficulty by the reduction in the economy’s potential growth rate as we had experienced in the global financial crisis in 2008. Such a consumption-based demand-led growth can provoke inflation and invite worsening balance of payments. On the contrary, if the economy’s demand-led growth is either investment-led or export-led, then the economy has a sufficient momentum to raise natural rate of economic growth. In other words, since the investment was productive, it reduces the supply bottlenecks. And if export earnings can finance imports necessary for faster economic growth, imports can be used for a more productive use than domestic resources.
  We have also estimated ex-post rates of return by industries in the Korean economy. During the period of 1981- 1990, the economy- wide average ex-post rate of return was very high (41%) as Harberger (1988) and Pyo and Nam (1999) termed it as ‘outlier’. But the rate of return started to fall to the level of 14.8% during 1991-2000, 6.6% during 2001-2010 and 2.5% during 2011-2014. The average ex-post rate of return in manufacturing is estimated to be only 1.69% even lower than the average ex-post rate of return in economy-wide level, which has affected sluggish investment in manufacturing during the period. We have also estimated an accelerator investment model with double-Koyck type expectation hypothesis to find that when we used both real investment and real output as variables, the estimated coefficient of ex-post rate of return was negative (-) and statistically significant. In case of Korea, the continued downfall of ex-post rate of return must have been a cause of investment stagnation during the period after the financial crisis in 1997.
  The case study on the country-specific investment-led policies can be summarized as follows. Dolinskaya (2002) provides us with the case of Russia in transition period (1991-1997) in which a reverse investment-led growth rather than investment-led growth was made. During the transition period, even the minimum investment for maintenance and replacement without mentioning new investments were not adequately made. As consequence, he estimates the growth accounting result of the transition period: Real GDP growth rate (-8.0%), labor input growth (-2.0%), Capital input growth (-1.7%) and TFP growth rate (-4.3%). According to Bosworth and Collins (2008), the growth rates of per capita real GDP during 1978-2004 are estimated as China (7.3%), India (3.3%) and East Asia except China and India (3.7% during 1980-2003). The growth rates of physical capital were China (3.2%), India (1.3%) and East Asia except China and India (0.9%). This result indicates for example, in case of China, the investment-led policy centered on physical capital input has promoted total factor productivity and as a result, it contributed significantly to enhancing output-income. Robertson (2010) argues that the total factor productivity growth rate in India (1.6%) is less than half the rate in China (3.6%) and therefore, unless India’s investment-led growth is lined to productivity growth, it may experience the falling rate of return from its excessive over-investment. India’s Investment/GDP ratio reached 35% level during 2000-2010. In Latin America, ‘economic populism’ was the core of its Keynesian policies. According to Isakkson, Ng and Robyn (2005), Brazil had fulfilled reforms on regulation in the public sector and had induced private capital in social infrastructure sectors. However, the existence of large unofficial labor market had inhibited private investment and productivity growth. It provides us with a lesson that any investment-led policy cannot be successful in maintaining a sustainable growth through productivity improvement unless its labor market operates normally. Argentina’s aggressive privatization policy in the 1990s had improves profit rate and operational efficiency in the privatized corporate sectors. But it could not be followed by and backed-up by institutional reforms and therefore had failed ultimately in late 1990s. OECD (2016) has analyzed the labor reform in Spain (2013-2015), Estonia (2009) and Slovania (2013) and recommended that labor reforms are key factors for the investment-led growth to be successful. OECD (2016) recommends a flexible labor market policy with reduced lay-off costs and lowering the income differential between full-time workers and party-time workers and between large enterprises and small and medium enterprises. OECD (2016) also recommends a voluntary and flexible labor relations system based on individual corporate practices rather than industry-wide centralized labor relations system.
  We have noted in this report that the income inequality status of Korea at the present time is in the mid-level among OECD countries and there is no significant sign of declining labor income. As pointed out in Pyo (2016b), the growth rate of real income by the middle class has been relatively falling behind that by the lower income class. The wag-led policy advocated by post-Keynesians and ILO (2011)) has been replaced by income-led policy encompassing non-wage income. However, the income-led policy has the following shortcomings and limitations. First, the economy with higher weight of external sector may face profit squeeze, increase in production costs and investment reduction rather than positive effects of wage and income increase. Second, the income-led policy can have a temporary expansionary effect only when the economy is in a deep depression or long-term recession. Third, as pointed out by Bowles and Boyer (1988), an income-led policy can be applied to advanced economies as a temporary recovery policy when they are equipped with social institutional infrastructure to manage wage restraints accompanied by labor reforms. Fourth, if a certain demand-led system is a kind of debt-financed consumption-led system, it can reduce future potential growth rate of the economy as many nations experienced in the global financial crisis. Such a debt-financed consumption-led system can invite inflation and worsening balance of payments as pointed out by Dray and Thirwall (2011). On the other hand, if the demand-led system is investment-led or export-led type, the economy may have enough room for lifting up natural growth rate. In other words, their investment will be productive so that it can reduce supply bottlenecks. If export earnings can finance imports necessary for faster economic growth, then imports can be used more productively than domestic resources. It will be desirable for government to switch from populist consumption-led system to investment-led and export-led demand system.
  Based on both theoretical and empirical analysis with country- specific case studies, we recommend the following policy prescriptions.
  (1)It is desirable for government to switch its policy from income-led growth policy to investment –led policy. The critical feature of income-led policy lies in its populist nature of zero-sum game-type income redistribution policy rather than stimulating income creation. The minimum wage policy, the arbitrary and forced labor policy to switch jobs from part-time to full-time, artificial job creation and increasing labor regulations can create irrecoverable high-cost production system due to the downward wage rigidity.
  (2)The switch from employment-biased policy to productivity- based policy is needed. The sectors and companies with higher productivity should be encouraged to create more jobs and on the contrary, the sectors and companies with lower productivity need to reduce jobs through labor reform. In this regard, the government needs to focus on corporate restructuring in non-competitive declining industries.
  (3)The movement for ‘doubling-productivity campaign’ by both public and private enterprises can be promoted. The means of doubling productivity are intra-industry restructuring and inter-industry restructuring. The intra-industry restructuring can be supported by both financial support and tax incentives for promoting M&A between lower-productivity enterprises and higher- productivity enterprises. The inter-industry restructuring can also be supported by both financial support and tax incentives to promote mobility among land, capital and labor.
  (4)It is necessary to promote innovation and human capital enhancement by the mainstream enterprises and companies. In order to prepare for the fourth industrial revolution, it is necessary to avoid too much regulatory educational policies and regulatory labor policies.
  (5)As pointed out by Piketty (2014), ‘the only exit’ for an industrialized capitalist economy, which faces ageing population and low fertility rate to survive and maintain a sustainable growth path is to increase productivity. The world-wide market trend is moving to the direction of mainstream economic theories such as new growth theory and endogenous growth theory. It is moving in the direction of “too-big-to-fail” phenomenon in which super-large nations such as Uniteds States, China, India and Japan play dominant roles and exert externality effects from cumulated social capital and R&D. Since the Korean economy is weaker in terms of cumulated physical, human and social capital, it needs to complement these weak points by strengthening external sectors. Income-led growth policies can repeat the failed inward-looking policies adopted once by India and Pakistan. Korea needs to re-orient its growth strategy toward outward-looking investment-led growth policy. 

서언

제1장 서론

제2장 소득주도 성장론과 이윤주도 성장론
1. 임금주도 성장론의 이론적 배경
2. 소득주도 성장론과 이윤주도 성장론
3. 소득주도 성장론의 실증분석
4. 한국에 대한 소득주도 성장론의 실증분석결과

제3장 투자주도 성장론의 이론적 배경과 실증분석
1. 투자주도 성장론의 기본모형
2. 임금주도 고용체제와 이윤주도 고용체제
3. 노사관계와 비정통적 행위·제도 모형
4. 투자주도 성장론의 실증분석

제4장. 산업별 투자수익률 및 투자함수 추계
1. 투자수익률의 추계 방법과 결과
    가. 사후적 투자수익률의 추계방법
    나. 사후적 투자수익률의 추계결과
2. 산업별 투자방정식과 추계결과
    가. 산업별 투자방정식의 설정
    나. 산업별 투자방정식의 추계결과

제5장. 투자주도 성장에 대한 각국의 사례분석
1. 러시아
2. 중국, 인도 및 동아시아의 비교분석
3. 라틴아메리카의 투자주도 성장
4. 스페인, 에스토니아와 슬로베니아의 노동개혁

제6장. 정책적 함의와 결론

참고문헌

부록

Executive Summary