Debt or Wage-led Growth: the European Integration
Journal
Journal of Economic Integration
Date Issued
2016-06
Author(s)
Toshevska trpchevska, Katerina
DOI
10.11130/jei.2016.31.2.326
Abstract
This study aims to outline the importance of increasing real wages in European
Union member countries. Since the 1970s, the European Union’s original member
countries (European Union-15) have pursued a neoliberal strategy, favoring exportled
growth. This strategy was supposed to increase the European Union’s international
competitiveness by reducing labor costs and encouraging investment as profits garnered
a greater share of national income. Since the 1990s, the European Union’s newer
members, primarily Central Eastern European countries, have pursued debt-led growth
as European Union membership opened financial markets to foreign capital. Both
strategies adopted wage moderation and both have been associated with weaker and
more volatile growth alongside rising unemployment. We argue that the European Union
should adopt a Keynesian demand-led growth model and raise real wages to generate
higher effective demand, which is crucial for achieving growth in economies operating
below full employment.
Union member countries. Since the 1970s, the European Union’s original member
countries (European Union-15) have pursued a neoliberal strategy, favoring exportled
growth. This strategy was supposed to increase the European Union’s international
competitiveness by reducing labor costs and encouraging investment as profits garnered
a greater share of national income. Since the 1990s, the European Union’s newer
members, primarily Central Eastern European countries, have pursued debt-led growth
as European Union membership opened financial markets to foreign capital. Both
strategies adopted wage moderation and both have been associated with weaker and
more volatile growth alongside rising unemployment. We argue that the European Union
should adopt a Keynesian demand-led growth model and raise real wages to generate
higher effective demand, which is crucial for achieving growth in economies operating
below full employment.
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