Wage-led growth in the EU15 member states: the effects of income distribution on growth, investment, trade balance, and inflation

Ozlem Onaran and Thomas Obst

No 14868, Greenwich Papers in Political Economy from University of Greenwich, Greenwich Political Economy Research Centre

Abstract: This paper estimates a multi-country demand-led growth model for the EU15. A decrease in the share of wages in national income in isolation leads to lower growth in Finland, France, Germany, Greece, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden and the United Kingdom, whereas it stimulates growth in Austria, Belgium, Denmark and Ireland. However, a simultaneous decline in the wage share leads to an overall decline in the EU15 GDP; hence EU15 as a whole is a wage-led economy. Furthermore, Austria and Ireland also experience a decline in growth when they decrease their wage share along with their trading partners. The results indicate that the decline in the wage share had significant negative effects on growth in the EU15 and supports the case for wage coordination. We present different wage-led recovery scenarios and the effects on prices, investment, and net exports.

Keywords: Wage Share; Growth; European multiplier; Demand regime (search for similar items in EconPapers)
JEL-codes: E12 E22 E25 (search for similar items in EconPapers)
Date: 2016-04-28
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Citations: View citations in EconPapers (65)

Published in Cambridge Journal of Economics 6.40(2016): pp. 1517-1551

Downloads: (external link)
http://gala.gre.ac.uk/id/eprint/14868/1/14868_Onar ... %20AAM%29%202016.pdf

Related works:
Journal Article: Wage-led growth in the EU15 member-states: the effects of income distribution on growth, investment, trade balance and inflation (2016)
Working Paper: Wage-led growth in the EU15 member states: The effects of income distribution on growth, investment, trade balance, and inflation (2016)
Working Paper: Wage-led growth in the EU15 member states: the effects of income distribution on growth, investment, trade balance, and inflation (2015)
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