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This is what policymakers can and canít do about low wage growth

Michael Keating writes in The Conversation (17.8.18) that governments can't undo the technological changes behind frozen wages and rising inequality. The best policy, according to the author, is to invest in education and training to give workers skills of value in the new economy.

'Increased inequality and low wage growth are constraining economic growth. But why is wage growth so low? And how should policymakers respond?

'Income inequality has increased significantly in most advanced economies since the early 1980s. In particular, very low rates of wage increase are widely blamed for the weak growth in aggregate demand this century and secular stagnation since the Global Financial Crisis. The GFC was itself brought on by the rise in consumer debt that was used at first to support demand in an attempt to offset the impact of weak wage growth.

'Fairfax columnist Ross Gittins recently noted that “many economists were disappointed by this week’s news … that consumer prices rose only 2.1%”. That was because low inflation is “usually a symptom of weak growth in economic activity and, in particular, of weak growth in wages”.

'... Thus, today it is widely agreed that wages need to increase faster. The OECD, the IMF, leading US scholars, former US Treasury Secretary Larry Summers, Nobel prize winner Joseph Stiglitz and most recently Stephen Bell and I in our book, Fair Share, have all argued that increasing inequality is bad for economic growth.

'To solve this problem, the critical issue for policymakers is what is causing this rising inequality and weak wage growth? Unless we better understand the causes, we are unlikely to achieve an effective policy solution.'


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