Wage-led growth in Europe

WAGE-LED GROWTH IN EUROPE? DEMAND EFFECTS OF CHANGES IN FUNCTIONAL INCOME DISTRIBUTION IN FINANCIALISED OPEN ECONOMIES

FEPS, in collaboration with TASC, University of Greenwich, Kingston University and with the support of Irish Congress of Trade Unions, has set up a project to study the effects of reduction in wages as a share of national income in Europe on aggregate demand. 

The project will last one year and will result in the publication of a detailed report.


Research Team:

Prof Ozlem Onaran, University of Greenwich (Principal investigator)

Prof Engelbert Stockhammer, Kingston University (Principal investigator)


Motivation:

In the past decades profound changes income distribution have occurred. Wages have fallen sharply as a share of national income in Europe and a new class of super rich has emerged. What are the effects of this on aggregate demand? Does it stimulate or depress demand? Does it lead to greater or less economics stability?

A recent report of the ILO (2012) has highlighted the potential of an equitable growth strategy. In this proposal we suggest a project that will analyse the demand effects of changes in functional income distribution for European countries.

The project is based on the theoretical framework of Bhaduri and Marglin (1990), which highlights that, other things equal, a fall in the wage share will have a negative effect on consumption, but may increase investment.

The fall in the wage share will also increase net export of any individual country. However, European countries mostly trade among each other. Thus this latter effect is likely to be much larger for individual member states than for the EU as a whole.

The project will estimate the relevant behavioural functions for the EU member states (EUMS), it will focus on the interactions between EUMS and take into account behavioural changes related to the financialisation of economies that occurred in the past decades.

The project will consist of three modules, two of which are analytical in nature and will provide new econometric evidence and a third one that will summarise the project findings for a general audience and derive policy conclusions for the EU.

Module 1 Demand effects of changes in functional income distribution in the EU member states and the EU overall.

Module 2. Financialisation and the demand effects of changes in functional income distribution in the EU member states

Module 3. Towards a wage-led growth strategy for Europe


Research and policy related output

Stockhammer, E., Wildauer, R (2016) Demand effects of financialisation and changes in functional income distribution in the EU Policy. Policy report.

Onaran, O., Stockhammer, E. (2016) Progressive policies for wage-led growth in Europe. Policy Viewpoint. 

Onaran, O., Stockhammer, E. (2016) Policies for wage-led growth in Europe. Policy Report.

Onaran, O., Obst, T. (2015)  Wage-led growth in the EU15 Member States . The effects of income distribution on growth, investment, trade balance, and inflation. Study.

Onaran, O., Obst, T. (2015) The Empirical Case for a Wage-led Recovery. Policy Viewpont n.7

Onaran, O. (2014). Europe needs a wage-led recovery Policy Viewpoint n3

Stockhammer, E. (2014). The recovery needs wage growth