Transcript Possible causes of decreasing wage ratio. How to

Possible causes of decreasing wage ratio.
How to overcome the phenomenon?
László György, PhD
Assistant Professor
Budapest University of Technology and Economics
Chief Economist
Századvég Economic Research Institute Ltd.
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Structure
1. Trends
2. Causes
3. Policy
solutions
4. The case
of
Hungary
2
Trends
Productivity – real wage gap (US)
3
Source: Ameco
-26
-25 -25
Greece
Ireland
-16
Japan
-10 -11
Portugal
Finland
-5 -5 -6 -6
-7 -7 -7
-8
Italy
Austria
Norway
UK
Spain
Australia
Canada
-11
United States
-3 -4
EU15
-2
France
-6
Sweden
-1
Germany
-1
Denmark
5
Netherlands
4
Luxemburg
Belgium
Change in wage share, percentage
points (1960-2015)
Trends
3
1
-13
-15
-21
4
Ireland
Slovakia
Romania
Macedonia
Hungary
Lithuania
Czech Republic
Poland
Malta
Latvia
Greece
Sweden
Cyprus
Norway
Luxemburg
Portugal
Estonia
Italy
Spain
EU
Austria
Bulgaria
Eurozone
UK
Finland
Croatia
Germany
Denmark
France
Netherlands
Iceland
Belgium
Slovenia
Switzerland
Trends
Current situation in the EU (%, 2015)
70
67
65
60
55
50
45
45 45 45
Source: Ameco
47 47 47
48
49
51
50 50 50 50 51
51
53 53
54
56 56 56
56 56 56 56 57 57
58
59 59
60 61
41
40
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Causes
Roots and causes of decreasing wage
share
Structural changes between
sectors
Technology
Globalization
Institutional changes
Decreasing bargaining power
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Causes
Structural changes between sectors
Source: http://112.international/
• Most of the fall in the labour share was the result of falling shares within
industries (ILO, 2010);
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Causes
Technology
Source: www.yourmobilephonereviews.co.uk
• Using less labor and more capital, and develop new labor-saving technologies
(OECD, 2012, 2015; Karabarbounis and Neiman, 2014; Bentolila and Saint-Paul, 2003
and more…)
• Still there are unanswered questions: why countries that are relatively similar
from a technological point of view differ in the scope of the decline?
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Causes
Globalization – trade and production
•
Wage share (%)
•
Production and trade: pressure on wages, significant negative effect
(Stockhammer, 2012; OECD, 2015)
Wage share and trade openness in Europe (1995-2015):
80
75
70
65
60
55
50
45
40
y = -0.0273x + 56.743
0
100
200
300
400
Trade openness (% of GDP)
Source: Ameco, World Bank
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Causes
Globalization – capital liberalization,
financialization
• Financial markets: influence businesses to increase shareholder value
(OECD, 2015) leads to Short term focus instead of long term sustainability
• Lee and Jayadev (2005):
– capital account liberalization reforms increase inequality
– little evidence that capital account liberalization can spur growth
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Source: http://blogs.strategygroup.net
Causes
Globalization – structural differences
between developed and developing
GDP-GNDI gap for Hungary 1956-2012
GDP
6-7%
Gap!
GNDI
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Causes
Institutional changes – consequence of
globalization(?)
• Labor market institutions
–E.g. trade union density and coverage ()
• Government presence and ownership in the economy ()
• Size of the welfare state ()
–Minimum wage ()
–Unemployment benefits ()
• Fiscal consolidation in 17 OECD countries over the period
1978-2009 had distributional effects by raising inequality
and decreasing labour income shares (Ball et al., 2013)
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Causes
In numbers (Stockhammer, 2012)
• 71 countries (28 advanced and 43 developing and emerging economies)
from 1970 to 2007
• Question: What caused the 9,4 percentage points average decrease?
• Result of the fixed effect model for the advanced countries
• Contributions to the change in the wage share for advanced countries,
1980/84 -2000/4:
Financialization Welfare state Globalization
0
-0.7
-0.5
-1.5
-1.9
-2
35%
Welfare state
Globalization
7%
14%
-2.5
-3.5
23%
-1.3
-1
-3
Financialization
Technology
Technology
20%
-3.3
Other
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Solutions
Policy tools to increase labor share
• Labor market institutions
– Employment protection
– Widening of trade union coverage and increasing density
• Social transfers
– Pushing up minimum wage
• Increasing employment and activity rates
• Government involvement in the economy
– Government consumption
– State ownership in Critical Infrastructure
• Tax policy
– Redistribution of wealth from oligopolists towards labor
• International cooperation
– Internationalization of labor unions
– Mitigate ‘race to the bottom’ – tax cooperation, eliminating offshore states
• Competitive exports
– From the end to the beginning of the value chain with R&D
– High added value  less price sensitivity  less wage competition
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Hungary
Case of Hungary: 1970-2010
7000
Employment: -30%
600000
500000
4000
400000
3000
300000
2000
HUF
5000
Net real wage total: +28%
1000
200000
100000
0
0
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Thousand
6000
700000
Number of employed
Real GDP/employed/month (right axis))
Net real wage/employed/month (right axis)
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Hungary
The Hungarian attempt: 2010Income redistribution from large global
to small local players
Large
monopolist and
oligopolist
players (utilities,
financial, retail,
more
telco)
than
2% of
GDP
Overhead
cost
reduction
• Employment protection: Job
Protection Action Plan
• Increasing employment rate (9%)
(560 000 increase in employment)
• Minimum wage increase
(real terms: 14% increase)
• Tax policy
– Redistribution of wealth from
oligopolists towards laborers and
families: (real terms: 10% increase)
Additional 4,3% real wage increase for
16
average families
Hungary
Marginal tax wedge at average wage
71%
49%
Source: own editing based on OECD data
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Closing remarks
Methodology
• Focus on net real wage not on gross wage ratio
• Focus on net real wage/GNDI (not GDP)
Practice
• (2%), be brave: tax oligpolist and monopolist capital; and
decrease tax wedge
• (4%), increase employment, decrease inactivity
• (2%), eliminate the discontents of globalization, above all
offshore (BEPS)
• build your own high value added economy (close the
GDP/GNDI gap)
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Thank you for your attention!
László György, PhD
Budapest University of Technology and Economics
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References
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Lavoie, M.-Stockhammer, E. (2012): Wage-led growth: concept, theories and policies. Conditions of
Work and Employment Branch. ILO, Geneva.
OECD (2015): The Labour Share in G20 Economies. International Labour Organization. Organisation
for Economic Co-operation and Development with contributions from International Monetary Fund
and World Bank Group. Report prepared for the G20 Employment Working Group Antalya, Turkey,
26-27 February.
Kristal, T. (2010): Good Times, Bad Times: Postwar Labor’s Share of National Income in Capitalist
Democracies. American Sociological Review. 75(5) pp. 729–763.
György,
László:
Offshore
–
van
megoldás.
2016.
május
27.
http://mozgasterblog.hu/blog/offshore_van_megoldas
Lee, K. – Jayadev A. (2005): Capital Account Liberalization, Growth and the Labor Share of Income:
Reviewing and Extending the Cross-country Evidence. In: G. Epstein (ed.): Capital Flight and Capital
Controls in Developing Countries. Cheltenham, Edward Elgar, pp. 1-50.
Bentolila, S.-Saint-Paul, G. (2003): ‘‘Explaining Movements in the Labor Share.’’ Contributions to
Macroeconomics 3: Article 9.
Ball, L., Furceri, D., Leigh, D., and Loungani, P. (2013): The distributional effects of fiscal
consolidation. IMF Working Paper, Washington.
International Labour Office (2010): Global Wage Report 2010/11: Wage policies in times of crisis
(Geneva).
Organisation for Economic Co-operation and Development (2012): Employment Outlook 2012
(Paris).
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