International Internet Magazine. Baltic States news & analytics
Tuesday, 24.01.2017, 03:08
Wage rise continues to stall, yet this has a bright side
From the point of view of sustainable growth, a slower rise in wages this year is rather good news. The wage rise has been exceeding productivity for a fourth consecutive year, making economists worry about the competitiveness of the economy and sustainability of growth. If wages continued to grow at the previous pace, even as economic growth slows, it would indicate that we have disturbed the macroeconomic balance (similar as during 2005 – 2007), the economy has over heated and a painful downward correction should be expected in the future.
Yet the current situation when wages are reacting flexibly to the output dynamics, is an additional argument in favour of us still being close to macroeconomic balance: the output gap is close to zero and unemployment is close to its natural level. Thus we have no reason to fear future and focus instead to supply-side economics in order to achieve a faster growth of the potential gross domestic product, i.e. continue to raise wages and living standard in a sustainable way.