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October 14, 2013 / Sian Moore

Özlem Onaran in FT on the effects of falling wage shares

Steve Johnson of the Financial Times has cited a recent ILO-commissioned report by Özlem Onaran and Giorgos Galanis in an article published on 13 October. From Johnson’s article:

““Is aggregate demand wage-led or profit-led?”, an analysis of 16 developed and developing countries published by the International Labour Office, found a ‘clear secular decline in the wage share [of GDP] in all countries’, starting from the late 1970s or early 1980s. . . . What all this means for the investment community is perhaps a little less clear-cut. . .

“Özlem Onaran and Giorgos Galanis, the authors of the paper, found the impact varied widely between countries. . . . On one hand, a decline in labour’s share of the pie could increase GDP growth by reducing companies’ cost base, calling forth more investment and raising net exports. On the other, a reduction in the share going to labour could weaken economic growth, as the marginal propensity to consume out of capital income is lower than that out of wage income. . . . The academics found the global effect of a squeeze on labour was negative, as the heightened export competitiveness enjoyed by countries with weak wage growth simply reduced the competitiveness of its trading partners – a form of ‘beggar thy neighbour’. A one percentage point fall in labour’s share was found to reduce global GDP by 0.36 points.”

The article is available here: http://www.ft.com/intl/cms/s/0/63f14896-2f6c-11e3-8cb2-00144feab7de.html?siteedition=uk#axzz2hdQyxP8n

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