CREATING JOBS BY INCREASING WAGES ? - PowerPoint Presentation

Slide1

CREATING JOBS BY INCREASING WAGES ?

Econospheres

, Brussels

November

2015

rjanssen@etuc.org

Slide2

RECALLING THE BACKGROUND

THE EURO AREA’S EXPERIMENT WITH INTERNAL DEVALUATION

« IF WE CAN’T DEVALUE THE CURRENCY ANYMORE, WE HAVE TO DEVALUE WAGES »Slide3

THE ROLE OF EUROPEAN ECONOMIC GOVERNANCE

BASICALLY A TRANSFER OF NATIONAL COMPETENCE ON WAGES (AND LABOUR MARKET POLICY) TO THE EUROPEAN LEVEL

ITS AIM IS TO ALLOW THE EUROPEAN LEVEL TO IMPOSE REFORMS ON MEMBER STATES THAT WOULD OTHERWISE BE VERY DIFFICULT….

…. BUT REFORMS THAT ARE NECESSARY TO SAVE THE SINGLE CURRENCY:

WAGES THAT ARE FLEXIBLE DOWNWARDS

MANY DIFFERENT WAYS

Troika

bail

outs

Commission

issuing

each

year

country

specific

recommendations

Macro

conditionalities

in

European

structural

funds

Since

2011, a new

policy

process

(« Excessive Macro

Imbalances

’)

giving

the Commission the

possibility

to

intervene

in national

economic

policy

making

(

including

wages

)Slide4

THEIR LATEST INVENTION: NATIONAL COMPETITIVENESS BOARDS

Commission

wants

European

Council to

agree

to a Council

Recommendation

that

requests

all euro area

member

states to set up a National

Competitiveness

Board

(Non euro

members

can

join

this

if

they

want

)

Independent experts, not to

be

influenced

by ‘

stakeholders

’ (social

partners

should

be

consulted

as a relevant

stakeholder

)Slide5

WHAT EXACTLY WILL THESE COMPETITIVENESS BOARDS BE DOING?

M

onitor

competitiveness developments relative to global

competitors. This includes wage dynamics (short term).

I

nform

the wage setting process by providing relevant information.

Monitor

policies and formulate policy advise in the field of competitiveness.

P

rovide

advice on the implementation of the Country Specific RecommendationsSlide6

THE COMMISSION’S PROPOSAL

There

is

language

on

taking

national

wage

formation

systems

into

account

and not

affecting

the right to

negotiate

collectively

and to

take

collective action (but

this

is

only

written

in the

recitals

)

However

, ‘mission

creep

’

is

already

in the pipeline:

Boards

need

to

be

statutory

: Points to a

legalistic

approach

to

wage

competitivenesstional

law

.

Future

progress report

to

see ”whether the adoption of binding provisions appears

necessary” is already being announced (after 6 months)

Accompanying Commission Communication: “if

necessary in stage 2 (…) common principles by means of a binding instrument will be presented

”. Stage 2 = Mid 2017Slide7

THE COMMISSION’S PROPOSAL

Basically

, stage

is

being

set for a

general

(euro area

wide

)

trespassing

into

the

domain

of

wage

bargaining

…

… and

this

under

the banner of ‘

competitiveness

’

Inspired

by the

Belgian

law

  on

competitiveness

and

wages

Experience

of

Belgian

trade

unions:

Works

systematically

to

the

advantage

of

employers

,

A

llows

government

to

intervene

in

wages

,

even

when

this

goes

against

collective

agreements

already

concluded

Organizes

the ‘race to the

bottom

’: The

lower

wage

dynamics

in Germany/France, the more the

legal

wage

margins

in

Belgium

get

compressedSlide8

THE ETUC RESOLUTION EXECUTIVE COMMITTEE OCTOBER 2015

Basic position:

The ETUC

rejects

these

National

Competitiveness

Boards

.

« 

We

do not

accept

any

institution (or the basis of

such

institution)

that

interfere

with

the

autonomy

of the social

partners

 » Slide9

COMPETITIVE WAGE DUMPING: DOES IT MAKE ANY SENSE ?

NOT ALL OF US CAN BECOME MORE COMPETITIVE AGAINST THE REST OF US

IF ALL OR A SERIES OF EURO AREA COUNTRIES SQUEEZE WAGES, NO ONE IMPROVES ITS COMPETITIVE POSITION….

…. BUT IF ALL OF US SQUEEZE WAGES WE UNDERMINE OUR OWN DOMESTIC DEMAND DYNAMICS…

….AS WELL AS EACH OTHERS’ EXPORT MARKETS Slide10

RECENT IMF STUDY SEEMS TO CONFIRM THIS

IMF STAFF DISCUSSION NOTE: WAGE MODERATION IN CRISIS 15/22

SIMULATES SCENARIO WHEREBY 5 CRISIS COUNTRIES (GREECE,ITALY,SPAIN,IRELAND,PORTUGAL) JOINTLY PUSH NOMINAL WAGES DOWN BY 2% OVER TWO YEARS

IMF ALSO ASSUMES NOMINAL INTEREST RATES ARE ALREADY AT THE ZERO BOUND, SO ECB CAN NOT CUT INTEREST RATES AS IT IS DIFFICULT TO HAVE INTEREST RATES BELOW ZEROSlide11

THE RESULTS FOR THE ENTIRE EURO AREASlide12

ANOTHER SIMULATION: ALL, NOT JUST FIVE COUNTRIES, SQUEEZE WAGES BY 2% Slide13

THE MECHANISM BEHIND

2% WAGE MODERATION IN ALL EURO AREA COUNTRIES (HENCE NO CHANGES IN INTRA EURO AREA COMPETITIVE POSITIONS)

PULLS INFLATION DOWN BY 2%

NOMINAL INTEREST RATES ARE STUCK AT THE ZERO LEVEL

SO REAL INTEREST RATES INCREASE

AND STIFLE CONSUMPTION AND INVESTMENT EXPENDITURE

END RESULT : WAGE MODERATION KILLS JOBS Slide14

THE INVERSE MECHANISM

WHAT IF ALL EURO AREA MEMBER STATES RAISE WAGES BY 2% ?

NO ONE LOSES COMPETITIVENESS TO ANOTHER EURO AREA COUNTRY

INFLATION GOES UP AND GOES BACK FROM ZERO NOW TO 2%

WHICH IS WHAT THE ECB LIKES TO SEE AS IT DEFINES A PRICE STABIITY TARGET OF 2%

SO THERE IS NO REASON FOR THE ECB TO RAISE INTEREST RATES

HIGHER INFLATION WITH NOMINAL INTEREST RATES STAYING PUT IMPLY LOWER REAL INTEREST RATES

CONSUMPTION AND INVESTMENT TAKE OFF: WE HAVE A RECOVERY! Slide15

PICTURE YOURSELF THIS GRAPH INVERTEDSlide16

OTHER RESEARCH CONFIRMS THIS

OZLEM ONARAM/THOMAS OBST: WAGE LED GROWTH IN EU 15 MEMBER STATES – FEPS 2015 PAPER

STARTS FROM OBSERVATION THAT WAGE SHARES HAVE BEEN FALLING ALL OVER EUROPE

SIMULATES WHAT WOULD HAPPEN IF WAGE SHARES ARE

SIMULTANEOUSLY

INCREASED BACK TO THEIR PEAK LEVELS IN THE EU 15Slide17

A SIMULTANEOUS WAGE LED RECOVERY FOR EU 15Slide18

MECHANISM BEHIND THESE RESULTS

TENDENCY TO CONSUME OUT OF WAGE INCOME IS HIGHER THAN TENDENCY OF CAPITAL OWNERS TO CONSUME OUT OF PROFITS

REDISTRIBUTION FROM PROFITS TO WAGES BOOSTS CONSUMPTION DEMAND

IMPROVED DEMAND PERSPECTIVES IMPLY HIGHER INVESTMENT , EVEN IF PROFIT SHARE IS LOWER

ON TOP OF THAT: INCREASE IN DOMESTIC CONSUMPTION IN ONE MEMBER STATE PROVIDES EXPORT MARKET FOR OTHERS AND VICE VERSA: INVESTMENT EVERYWHERE GETS AN EXTRA UPWARD PUSH

Slide19

CONCLUSION

OUR DEMAND FOR AN INCREASE IN PAY FOR ALL WORKERS ACROSS EUROPE MAKES MUCH SENSE IN THIS CONTEXT OF LOW INFLATION

PROBLEM HOWEVER: HOW

TO CONVINCE POLICY MAKERS ?