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

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

Onaran, Özlem ORCID: 0000-0002-6345-9922 and Obst, Thomas (2016) Wage-led growth in the EU15 member states: the effects of income distribution on growth, investment, trade balance, and inflation. Cambridge Journal of Economics, 40 (6). pp. 1517-1551. ISSN 0309-166X (Print), 1464-3545 (Online) (doi:https://doi.org/10.1093/cje/bew009)

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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.

Item Type: Article
Uncontrolled Keywords: Wage Share, Growth, European multiplier, Demand regime,
Subjects: H Social Sciences > HG Finance
Faculty / Department / Research Group: Faculty of Business
Faculty of Business > Department of International Business & Economics
Faculty of Business > Institute of Political Economy, Governance, Finance and Accountability (IPEGFA)
Faculty of Business > Institute of Political Economy, Governance, Finance and Accountability (IPEGFA) > Greenwich Political Economy Research Centre (GPERC)
Last Modified: 10 May 2019 11:38
Selected for GREAT 2016: GREAT a
Selected for GREAT 2017: None
Selected for GREAT 2018: None
Selected for GREAT 2019: GREAT 5
URI: http://gala.gre.ac.uk/id/eprint/14868

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