State intervention for wage-led development

Document type
Paper
Author(s)
Onaran, Özlem
Publisher
Centre for Labour and Social Studies
Date of publication
1 September 2014
Series
Policy series
Subject(s)
Employment, Poverty Alleviation Welfare Benefits and Financial Inclusion, Social Policy
Collection
Social welfare
Material type
Reports

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Since the 1980s there has been a clear reversal of the trend towards relatively egalitarian income distribution achieved during the post-war period, with a global race to the bottom occurring in the share of wages in national income in the UK and elsewhere. This decline in the wage share was associated with a weaker and more volatile growth performance. In the UK, similar to the US or the periphery of Europe, households increased their debt to maintain consumption levels in the absence of decent wage increases. The crisis of 2007-9, and the subsequent Great Recession have proven the fragility of this model. The recovery in Britain is built once again on the shaky ground of household debt instead of wage growth.

In a wage-led country like the UK, or the EU as a whole, more egalitarian policies are consistent with growth. A wage-led recovery out of the financial crisis is feasible, but will need political will to be achieved. Globalisation is not an impediment to a wage-led development strategy. The UK and the EU as a whole would be the economies that would benefit most from a coordinated boost to the wage share at the global level. As such, the UK and Europe could, and should, take a step forward in terms of radically reversing the fall in the wage share. This would then create space for egalitarian growth strategies at a global level.

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