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Why The Recovery Needs Wage Growth

Ozlem Onaran, Ο. & Stockhammer, Ε. (2014) “Why The Recovery Needs Wage Growth“, Social Europe Journal, 21 May.


Five years after the beginning of the recession real wages in Britain are still well below their pre-crisis level. As of March 2014 real weekly earnings (deflated by the RPI) are at the level of November 2000; that is a staggering 12% below their peak in February 2008. Is that a good thing, improving the competitiveness of British industry? Is it necessary to hold back wage growth to enable a recovery? In our recent book Wage-led Growth we argue that – against orthodox theory – in the present situation higher wages are not a hindrance but an essential ingredient of economic recovery.

In a capitalist economy wages always play a dual role. They are cost to business in production and they are also source of demand. Wages, after all are the main income for most households. It is wages that allow most people to pay for their shopping as well as their mortgage.This had been pointed out two generations ago by John Maynard Keynes, but this aspect of his theory is widely neglected by mainstream economics.


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