TUAC seriously doubts the OECD’s analysis in its latest Economic Outlook and rejects its key recommendations on macroeconomic policy.
TUAC is sceptical of the OECD’s assumption that the global economy and labour markets are resilient enough to withstand a return to fiscal austerity and structural reforms that worsen inequality. This comes at a time when business investment and household spending are still constrained by high interest rates and economic uncertainty.
TUAC fears the OECD has got its recommendations wrong, specifically to
(1) intensify fiscal consolidation, and
(2) “improve the economy’s growth potential” with ambitious structural reforms, including a loosening of employment protection.
TUAC is concerned that the OECD’s recommendation to step up fiscal tightening, when restrictive monetary policy continues to suppress demand, risks pushing inflation further down and below target.
This could result in pushing economies back into the low inflation trap of the previous decade, when economies were grappling with zero inflation and the danger of falling into deflation, and with monetary policy unable to lift economic activity.
“Instead of taking out insurance against possible inflation shocks by running the economy cold, the OECD should advise policy makers to cut interest rates more and faster before labour markets weaken and trigger a spiral of employment restructuring creating weaker demand and even more job destruction."
Moreover, reforms that make labour markets more ‘flexible’ are likely to increase unemployment and suppress wages and are sure to reinforce already record high inequality.
Previous work by the OECD clearly shows that cutting job protection increases inequality by weakening the bargaining position of lower skilled workers and pushing down the disposable income of poor and low middle class households. Inequality in turn breeds economic instability and weakens trust in democracy.
“What the OECD should be concerned about is tariff wars stifling export and domestic demand, tax cuts for the rich triggering another round of monetary restriction, and inequality feeding political polarisation. The answer to this is not austerity and yet more labour market flexibility. The solution is public investment in a stronger and more sustainable economy to grow out of debt.”
On a positive note, the Economic Outlook stresses the importance of job quality to increase labour market participation and address labour shortages, a problem which will only increase in importance due to an ageing workforce.
Sectors facing the highest labour shortages are also those where wages are low and working conditions are poor (agriculture, accommodation, construction, health and social care, transportation and storage).
The power of employers to set wages is one of the forces keeping wages down despite labour shortages and low unemployment rates. Basing itself on the Employment Outlook of 2022, the Economic Outlook suggests that stronger trade unions and more collective bargaining counteract the power employers hold over wages, ensuring better wages and lower excess profits. The OECD recommends “policies to enhance equality of economic opportunities, notably for women, older workers and migrants, and to promote social dialogue over pay, access to social protection and working conditions.”
“It is an important recognition by the OECD that labour shortages are not necessarily about a lack of workers or skills but a lack of collective bargaining giving employers the opportunity to offer low wages and poor working conditions.”
