In a recent blog post we showed that the upturn of the German economy between 2000 and 2009 was primarily due to a restrictive wage policy. Our newest study seeks to answer the question whether this strategy could work for the crisis-ridden southern European countries.

We look at three different wage-setting scenarios:

 

  1. Reference scenario: We assume a wage policy, which keeps the wage increase in line with inflation and productivity gains
  2. Wage moderation strategy: The increase of wage is lower than the increase in productivity.
  3. Wage promotion strategy: The increase of wage is higher than the increase in productivity.

 

Running those scenarios over a timeframe till 2030 we arrive at our conclusion: Wage restraint can promote growth for the crisis countries by increasing their international price competitiveness. For this to work, however, the wage adjustments have do be accompanied by the right economic policies.

 

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