Assumptions of the Simple WS-PS Income Distribution Model
The application of the WS-PS model to income distribution relies on a simplified economic structure with several key assumptions. First, the economy consists of only two groups: employers who own the firms and workers. Second, labor is the only input for production. Third, each worker produces a constant amount of output per day, denoted as λ (labor productivity). Finally, this output is divided such that the firm receives a constant fraction, σ, as its profit share, with the value of σ being dependent on the degree of market competition.
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Ch.2 Unemployment, wages, and inequality: Supply-side policies and institutions - The Economy 2.0 Macroeconomics @ CORE Econ
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