Debt or Wage-led Growth: the European Integration

Elena Makrevska Disoska () and Katerina Toshevska-Trpcevska ()
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Elena Makrevska Disoska: University Ss. Cyril and Methodius, Faculty of Economics –Skopje, Postal: Ss Cyril and Methodius University in Skopje, Faculty of Economics – Skopje,, Blvd. Goce Delcev 9V, 1000 Skopje, Republic of Macedonia
Katerina Toshevska-Trpcevska: University Ss. Cyril and Methodius, Faculty of Economics –Skopje, Postal: Ss Cyril and Methodius University in Skopje, Faculty of Economics – Skopje, Blvd. Goce, Delcev 9V, 1000 Skopje, Republic of Macedonia

Journal of Economic Integration, 2016, vol. 31, issue 2, 326-352

Abstract: This study aims to outline the importance of increasing real wages in European Union member countries. Since the 1970s, the European Union’s original member countries (European Union-15) have pursued a neoliberal strategy, favoring exportled growth. This strategy was supposed to increase the European Union’s international competitiveness by reducing labor costs and encouraging investment as profits garnered a greater share of national income. Since the 1990s, the European Union’s newer members, primarily Central Eastern European countries, have pursued debt-led growth as European Union membership opened financial markets to foreign capital. Both strategies adopted wage moderation and both have been associated with weaker and more volatile growth alongside rising unemployment. We argue that the European Union should adopt a Keynesian demand-led growth model and raise real wages to generate higher effective demand, which is crucial for achieving growth in economies operating below full employment.

Keywords: Age-led Growth; Profit Share; Demand; European Union-15; Central and Eastern Europe (search for similar items in EconPapers)
JEL-codes: E12 F15 P51 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0687

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