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TUAC Reaction to the OECD Economic Outlook, December 2020

02 December 2020

Executive Summary

  • In its last edition for 2020 of the Economic Outlook, the OECD provides growth forecasts and policy recommendations for exiting, eventually, the COVID-19 crisis.
  • Year 2020 will end with a global GDP fall of -4.2%. The global average masks important discrepancies among countries and it remains highly uncertain, until a vaccine confirmation and distribution on large scale become effective. Global unemployment will remain persistently larger than prior to COVID-19, at about 7% for the next three years, almost 2% higher than in 2019.
  • In its policy response, the OECD endorses prolonged fiscal and monetary policy in support of the economy, amid the worst crisis in peacetime history.
  • Beyond the immediate support measures to the economy, the OECD report suggests addressing fiscal policy towards education, health, digital and physical infrastructure.
  • On employment and labour market specifically, the focus is  on skills and vocational education and training, on active labour market policies and on reducing “barriers to labour mobility”, such as occupational licensing and housing market rigidities. In short, workers hit by the crisis are asked to educate themselves and to move for new jobs. Little is said about the need for employers to improve employment protection, nor about collective bargaining.
  • Increasing access to skills is of course much relevant, but definitely insufficient to tackle the enormous social and economic challenge of the immediate future, once most support measures to firms and workers phase out. On that, the Economic Outlook misses again the opportunity to mention the role of social dialogue, labour institutions and collective bargaining in guaranteeing fair and decent jobs in the face of rising unemployment, job inequality and labour market concentration.
  • Furthermore, the analysis does not mention the prolonged compression of wages and their decoupling from productivity levels, which has been a normal for the past twenty and more years, with negative effects on aggregate demand, hence economic growth. Additional labour market liberalisation would arguably intensify, rather than solve, these issues.
  • In discussing inflation and monetary policy, the Economic Outlook flags three major mega-trends as the cause of stagnant prices: globalisation, technological progress and market concentration; reduction of intermediaries in the retail sector and lower mark-ups; saturation of demand for durable goods in the face of large production capacity.
  • Again, the OECD fails to acknowledge the central role of wages in driving price expectations. Under-consumption in many economies is not the result of “saturated” demand, on the contrary it stems from rising income inequality and budgetary constraints, which negatively affect aggregate demand.
  • Among else, the Economic Outlook delves into the rising insolvency risk and debt overhang in the corporate sector, suggesting viable ways for the public sector to support private companies, including equity and quasi-equity financing solutions. Yet, it does not raise the important topic of conditionalities that should be attached to such forms of public support to the business sector. Contrary to the idea of neutrality at all costs, the state could well have a steering role in boosting firms’ investment decisions and addressing it towards strategic directions, from digitalisation to the green economy.