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The OECD re-affirms the need for stronger wages but fails to draw the necessary conclusions regarding the bargaining power of workers

20 September 2017

The OECD’s key messages from its interim forecast published today is that the economic upturn is gaining momentum and becoming more synchronised across countries. Importantly, the OECD recognises that weak wage dynamics is as one of the major obstacles that is holding back growth and demand. However, it is disappointing that the OECD’s conclusions yet again fail to include policies aimed at stimulating the wage growth needed to sustain the current upturn in its recommendations.

Even in crisis-struck euro area countries, growth dynamics finally are expected to somewhat firm up, although the pace of growth still remains constraint, with Italy only expanding by 1.2% in 2018 and France by 1.6%.

However, as the OECD correctly observes, this short-term momentum is no guarantee for medium-term sustained growth, and to secure the latter, policy needs to step up.

The OECD is also correct to identify the weak wage dynamics as one of the major obstacles that is holding back growth and demand. Indeed, despite declines in unemployment in most advanced economies, average real wages have only increased by 0.2% per year since 2008, partly explaining why real disposable household income of the bottom 10% still hasn’t recovered the lost ground since the start of the crisis. Instead, the OECD stresses stronger structural reforms that address productivity gains, supposing that stronger productivity growth will translate into stronger wage growth. Against the background of three decades of wages staying behind productivity across the entire OECD, this approach, which broadly repeats the previous OECD Economis Outlook of June[i], offers an incomplete response.

The OECD should urgently start to consider the role of coordinated collective bargaining in rebalancing the negotiating power of labour as well as the positive role robust wage standards can play in providing incentives to business management in improving productivity and driving innovation forward.

[i] OECD Economic Outlook 2017 recognises that weak wages produce a weak recovery 07/06/2017