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Opportunities and limits of rebalancing the Eurozone via wage policies

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  • Eckhard Hein
  • Eckhard Achim Truger

Abstract

In this paper we discuss the relationship between the current account rebalancing in the Eu-rozone, income distribution and wage policies with a focus on the main surplus economy, Germany. We will illustrate how and to which extent German wage policies could be able to contribute to a more balanced development of the Eurozone and to overcome the export-led mercantilist German model. Our analysis and our scenarios will be based on stylized econo-metric results for Germany, as they have recently been obtained in the empirical literature estimating the German demand and growth regime based on post-Kaleckian models. We will focus in particular on the relationship between nominal wages and functional income distribu-tion, on the one hand, and between functional income distribution and domestic demand, on the other hand. We show that more expansionary wage policy can contribute to reducing the excessive German current account surplus, mainly through the domestic income-imports channel. However, wage policy alone will be overburdened with the task of rebalancing. For this, in particular more expansionary fiscal policies are required.

Suggested Citation

  • Eckhard Hein & Eckhard Achim Truger, 2017. "Opportunities and limits of rebalancing the Eurozone via wage policies," FMM Working Paper 06-2017, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  • Handle: RePEc:imk:fmmpap:06-2017
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    References listed on IDEAS

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    1. Robert Kollmann & Marco Ratto & Werner Roeger & Jan in't Veld & Lukas Vogel, 2015. "What drives the German current account? And how does it affect other EU Member States?," Economic Policy, CEPR;CES;MSH, vol. 30(81), pages 47-93.
    2. Engelbert Stockhammer & Dimitris P. Sotiropoulos, 2014. "Rebalancing the Euro Area: The Costs of Internal Devaluation," Review of Political Economy, Taylor & Francis Journals, vol. 26(2), pages 210-233, April.
    3. Obst, Thomas & Onaran, Özlem & Nikolaidi, Maria, 2017. "The effect of income distribution and fiscal policy on growth, investment, and budget balance: the case of Europe," Greenwich Papers in Political Economy 16088, University of Greenwich, Greenwich Political Economy Research Centre.
    4. Engelbert Stockhammer & Eckhard Hein & Lucas Grafl, 2011. "Globalization and the effects of changes in functional income distribution on aggregate demand in Germany," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(1), pages 1-23.
    5. Hans-Werner Sinn, 2014. "Austerity, Growth and Inflation: Remarks on the Eurozone's Unresolved Competitiveness Problem," The World Economy, Wiley Blackwell, vol. 37(1), pages 1-13, January.
    6. Özlem Onaran, 2016. "Wage- versus profit-led growth in the context of globalization and public spending: the political aspects of wage-led recovery," Review of Keynesian Economics, Edward Elgar Publishing, vol. 4(4), pages 458-474, October.
    7. Eckhard Hein & Lena Vogel, 2009. "Distribution and Growth in France and Germany: Single Equation Estimations and Model Simulations Based on the Bhaduri/Marglin Model," Review of Political Economy, Taylor & Francis Journals, vol. 21(2), pages 245-272.
    8. Gustav A. Horn & Fabian Lindner & Sabine Stephan, 2017. "Zur Rolle der Nominallöhne für die Handels- und Leistungsbilanzüberschüsse," IMK Report 125-2017, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    9. Ozlem Onaran & Thomas Obst, 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, Oxford University Press, vol. 40(6), pages 1517-1551.
    10. Eckhard Hein & Achim Truger & Till van Treeck, 2011. "The European Financial and Economic Crisis: Alternative Solutions from a (Post-) Keynesian Perspective," IMK Working Paper 9-2011, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    11. Engelbert Stockhammer & Özlem Onaran, 2012. "Rethinking wage policy in the face of the Euro crisis. Implications of the wage-led demand regime," International Review of Applied Economics, Taylor & Francis Journals, vol. 26(2), pages 191-203, September.
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    15. Achim Truger, 2015. "Implementing the golden rule for public investment in Europe," Working Paper Reihe der AK Wien - Materialien zu Wirtschaft und Gesellschaft 138, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik.
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    19. C. W.M. Naastepad & Servaas Storm, 2007. "OECD demand regimes (1960-2000)," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 29(2), pages 211-246, January.
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    More about this item

    Keywords

    Current account imbalances in the Eurozone; wage policies; distribution; exports; imports;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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