The Potentials Of Wage-Led Growth

New Perspectives On Economic Growth

This blog introduces a project commissioned by the International Labour Office (ILO). The wage-led growth strategy aims at an economic regime where real wage growth leads to increased demand and technological progress and thereby provides the foundation for a sustainable growth process. But what determines wage growth or changes in income distribution in the first place? What have been the causes for the shift of income distribution at the expense of labour in advanced economies in the past three decades? How can wage growth be restored? These are the questions that motivate this project. The project reports form the background for a substantial part of the ILO’s Global Wage Report 2012/131.

• Lavoie and Stockhammer (2012) argue that the polarization of income distribution and the decline in the wage share play an important role in the generation of unbalanced and fragile growth in the neoliberal era. The authors examine the possibility of, a wage-led growth strategy, which is likely to generate a much more stable growth regime for the future.

• Stockhammer (2013) investigates the relative impact of financialisation, globalisation, welfare state retrenchment and technological change on functional income distribution. By means of a panel analysis covering up to 71 countries from 1970 to 2007. He find strong negative effects of financialisation as well as negative effects of welfare state retrenchment and globalisation, but only a small contribution of technological change.

• Onaran and Galanis (2012) estimate the effects of a change in the wage share on growth in the G20 countries using a post-Keynesian/post-Kaleckian model, analyses the interactions among different economies, and calculates the global multiplier effects of a simultaneous decline in the wage share.

• Storm and Naastepad (2012) argue that higher real wages provide macroeconomic benefits in terms of increased demand (if the economy is wage-led) and higher labour productivity growth and more rapid technological progress.

• Van Treeck and Sturn (2012) investigate the macroeconomic effects of increasing personal income inequality in the USA, Germany and China. They argue that reducing inequality in these countries is crucial for overcoming macroeconomic instability and the global and European current account imbalances over the longer term.

• Hein and Mundt (2012) argue that the severity of the present crisis has to be understood by examining the medium- to long-run developments since the early 1980s: inefficient regulation of financial markets, increasing inequality in the distribution of income and rising imbalances at the global level. The requirements for distribution policies within an expansionary post-crisis economic policy regime, a wage-led growth regime embedded in a Global Keynesian New Deal, are outlined.

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